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Small Business Employee Benefits and HR Blog

Health Insurance Tax Credit FAQ - What if My Income Changes?

As of 2014, tax credits are available to help individuals purchase health insurance coverage through the new health insurance marketplaces. The individual health insurance tax credits are based on income, and are advanced-payable so they can be used right away to lower the monthly premium costs. The health insurance tax credits range on a sliding scale, depending on income. So, what happens if your income changes during the year?

Health Insurance Tax Credits - What to Do if Income Changes

FAQ - What if My Income Changes and I Received a Health Insurance Tax Credit?

If your income increases during the year you may have to repay some of the money, but the amount you owe would likely be capped (more on this below). 

If your income decreases during the year you may receive a refund at tax time.

When you apply for health insurance through your state’s health insurance marketplace (ex: healthcare.gov), you’ll be asked about your household income. If your income changes during the year, you should notify the marketplace. During tax time, your health insurance tax credit will be reconciled with your income for the year.

Here's an example.

You apply for health insurance in January. You are working part-time and earning $25,000/year. You are not offered health insurance at work. As a single individual, your household income is 218% of the federal poverty line (FPL). This means you're eligible for a health insurance tax credit which caps your health insurance premium at $144/month.

In July, your hours are increased at work and your salary is now $40,000/year. You are now earning 348% of FPL and are still eligible for a tax credit, but a lessor amount. Your new tax credit caps the cost of your health insurance premium at $258/month.

In this example, you should notify the marketplace that your income has changed. Otherwise at tax time you'd be required to repay the difference of tax credit amounts ($114/month or $685 for six months). But for some people, the amount you have to repay will be capped (read on).

Health Insurance Tax Credits - Maximum Repay Amounts

Under the health care reform law, your liability is limited if your income is less than 400% of the FPL. As such, there are caps on the amount people will have to repay. Individuals earning less than 200% of FPL will repay no more than $300, individuals earning 200-300% of FPL will repay no more than $750, and individuals earning 300-400% FPL will repay no more than $1,250.

Here's a summary of repayment caps for the health insurance tax credits.

repayment_amount

Chart source: CBPP

More resources on the individual health insurance tax credits:

Questions on the health insurance tax credits? Leave a comment below.

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