Try not to worry! You aren't the only one who underestimated your income last year and received a subsidy. For many, it's hard to know when a new job will come or what income will look like next year. The government isn't going to come after you, but you will have to pay back at least some of the subsidy on your taxes.
If you’re off just a bit, it shouldn’t make that much difference. But if you lowball it by a bundle, you could end up having to pay back most or all of those subsidies.
Here’s how it works: If you go to healthcare.gov beginning November 1st to shop for a policy, you’ll be asked to submit your estimated “modified adjusted gross income” (MAGI).
For most people, MAGI will be their estimated wages, interest and dividend income — generally, all taxable income. It also includes non-taxable Social Security benefits and some pension and annuity payments.
That MAGI amount will help determine if you’re eligible for a subsidy and how much that subsidy will be. For those on the lower-income scales, the subsidy could be substantial.
The feds will be checking some income submissions, to see if they’re wildly different than your last reported income. But you’re pretty much on the honor system when it comes to reporting your MAGI.
However, the estimated income you claim will be checked against your actual income when you file your federal income tax return. If you earned more than you estimated, and you got a subsidy for your health insurance, you may have to pay back some of the subsidy.
The maximum amount of payback is tied to your actual income. If you earn anywhere from 100% to 199% percent of the federal poverty level, your maximum payback is $300 for an individual and $600 for a family.
The maximum payback rises gradually to $1,250 for an individual and $2,500 for a family for those earning 300 percent to 399 percent of the poverty level, and, for those at 400 percent of poverty and higher, you must pay back all of the overpayment.
So, if you estimate your income at a lowly $18,000 and thus get a substantial subsidy to offset your insurance policy, and you get a much better job or have a big capital gains and your income soars — be prepared pay back that subsidy.
The Takeaway: What you overpay or underpay will be reconciled at tax time
Here are the steps to take if you've underestimated your income:
1. Log in to your Healthcare.gov account (or your state marketplace account) and update your information.
If your employer offers a qualified group health plan, then you'll need to update this detail in your account because you won't be eligible for a subsidy even if your income is low enough. If your employer doesn't offer a group health plan or offers one that doesn't meet the qualification requirements, update your income information to correctly reflect what you will earn this year. Be sure to include all of your income, not just what your employer is paying you.
2. Calculate how much you will owe on your taxes (and save accordingly).
Now that you've updated your information in your Healthcare.gov account, you will know how much your health plan should have cost you this year. Let’s say it’s $135. Take $135 (the monthly amount) and subtract $20 (the amount you did pay each month). Then, multiply $115 by the number of months you weren't paying the full (or close to full) price for your health plan. Let’s say you weren’t paying full price for nine months. Now, you are looking at $115 X 9=$1,035. That number represents the most you will have to pay on your taxes come April.
The amount one could owe the IRS can be anywhere from just a few hundred dollars to over a thousand. After estimating how much it will cost you, start saving to prepare for a visit from the tax man.
Fortunately, there won't be any repercussions other than having to pay back the subsidy. As healthcare reform continues to evolve, some of the way underestimating income is handled may change. Regardless, it's important to correctly estimate your income (if possible) so you don't acquire unwanted expenses.
Let's start by saying someone should do something about this. The low and middle income class families that had to get insurance and they miscalculated their annual income they are now having to pay the Internal Revenue Service back. And you know that those families were looking forward to that money. That's what happened to us. We miscalculated the annual income when resigning up for healthcare and now that tax time is here our tax preparer told us that because we supposedly got to much in subsidies we now habe to pay 1500 back the Internal Revenue Service . Who is looking out for the little people. A healthcare system that was suppose to help low and middle class families is actually hurting them in the long run. Can someone help please.
My tax return says I owe over $9000 due to the subsidy from the healthcare marketplace. I cannot pay this. What do I do??
Your best option will be to talk to a tax professional. They will be able to walk you through all your options.
If your income changes throughout the year, you should always report those changes to the marketplace if you receive a subsidy.
I'm still in total shock. My tax return says I owe $19,500 - $17,400 of that is subsidy 100% payback because I withdrew money from 401 to pay off house and car to be able to retire on small pension of only 14 yrs. service. Took every penny to pay everything off. Told my wife, we can do it, it will be tight but we'll make it ok and than this.
Is bankruptcy an option when you owe this kind of money, I cannot pay this.
I am sorry you are going through this. There may be ways to lower this amount or extend the amount of time to pay this amount (assuming it is accurate and not a mistake). I am not a tax professional but would suggest contacting one asap. Email me directly at email@example.com if you want the name of a good referral.
Sorry I could not be more helpful!
I have 1 question with 2 parts! The first part of my question is most important.
I am a family of 3 in Connecticut, receiving the least amount of subsidies right before the ceiling cuts us off from all Obamacare subsidies. So if I go over by $1 that will cost me ~$15,000.
Part A) When I file my taxes in April 2019 for YEAR2018, is the cut off 400% of the poverty level for 2017 ($81,680) or 400% of the poverty level for 2018 ($83,120)?
Part B) I have my 1 year old enrolled in Childrens Health Insurance Program (CHIP). I dont think you can answer this but wondering if you know where I can find how much I'll have to pay back. I am in the highest bracket before I dont receive assistance ($30/month with a copay).
Any and all help you can provide will be amazing. thank you!
Part A) When filing taxes in April 2019 (for year 2018), you'll use the FPL from 2018. Here is a follow up article that may provide some additional help:
What are Federal Poverty Levels Used for?
Part B) I'm not qualified to answer that question unfortunately. I would advise reaching out to a tax professional.
I also found some Connecticut specific links that may point you in the right direction:
In the scenario you describe above, one’s income is larger than anticipated and, therefore, the subsidies will be less - and amounts owed to IRS will be difference between the two subsidies.
What happens when Medicaid is involved? I just learned I will be about $500 over the 2018 annual maximum income limit.
I'd reach out to a tax professional for more specifics, but generally speaking you are only penalized when you report making significantly less than what you actually earned.
Medicaid rules vary by state, but in most cases, you would just be deemed not medicaid eligible and would qualify to enroll in a regular ACA plan.
I underestimated my income for my husband. I am at a loss for mine but his went over due to having to work disaster relief. I think I out in 40 or 50000 and he made $75000. Now we owe $11000 which I think is unfair since I had no way of estimating what he could make since it was in November and December that it went up $16000 or more dollars. I didn’t even think of calling because of everything else that was going on in my life. Is it ok if we claim no insurance get refund then amend it after? Then call IRS to make payments?
What I can tell you is that the best way to avoid a penalty is to report any changes in income throughout the year to healthcare.gov. When you sign up through an insurance agency (like us), our agents can also report these changes for you and update it on your behalf.
I would talk to a tax professional for more advice on how to file your taxes, unfortunately we aren't much help in that regard!
Hi, I have 2 questions:
For marketplace 2018 we estimated $70,000 as our income from previous years, and we are a family of 5. However last year my husband made $130,000, BUT 30,000 of that went to supplies for his business and paying workers. Will we owe Marketplace money when we do our taxes?
2nd question: When we signed up for 2019 we estimated $70,000 for income for this year. However it is only February and he has made almost a 3rd of that. But there is no guarantee making that amount will continue because he is self employed in construction. So each job pays differently, and some months are better than others. What should we do?
Thanks so much!
1. You can read more about how to calculate MAGI (what subsidies are based off) here:
What is Modified Adjusted Gross Income (MAGI)?
2. The best way to make sure you do not owe any subsidies is to update your income throughout the year on healthcare.gov. If you'd like one of our agents to assist with this, give us a call or email firstname.lastname@example.org - as marketplace agents, we can do this on your behalf and it only takes a second!
You'll want to work with a tax accountant on any of the specifics when you file your taxes (we're just health insurance agents, not tax guys!)--it's all reconciled at the end of the year. Best way to avoid any paying back of subsidy is to update your fluctuating income throughout the year.
Here's my dilemma: After figuring all my income, I am below the $48,500 for an individual, so believed that I would not have to repay my Obamacare subsidy. However, my tax form required me to add the subsidy as income, which has now put me over by $10,000, and I now have to pay it all back, more than $10k. What kind of logic is that? I worked hard to keep my income below the required level through 401k contributions, and then they add the subsidy? What are my options?
Let me try to clear this up: The health insurance subsidy is calculated based on your Modified Adjusted Gross Income (essentially gross income with a few allowed few deductions).
The subsidy is never taxed or used to calculate your taxable income. However, if you underestimated your income and received a larger subsidy because you made more than estimated, you do need to pay back the difference between the amount received and the amount you "should" have received.
Tax forms do have a box to add subsidy income to be taxed on so you may have misread it. If you have further tax questions, I would consult a tax professional. Many of the online ones offer free consultations this year.
We went to file taxes. My husband received a small inheritance under 15,000 in October. Unfortunately I forgot to report this and now they want us to pay the entire year of full premiums, over 8,000. Is there any recourse.
When we signed up for 2018 Health care through Marketplace back in 2017, we were told by our Marketplace representative that our oldest daughter which would turn 25 in 2018, could be included on our 2018 Health care coverage because she was a full time student and under the age of 26. We would qualify as long as we kept our Adjusted gross Income to below $100,400. I just called Marketplace earlier today to verify this, and they said, yes, that is correct. When we now go to file our taxes, our CPA tells us that we would have had to stay below $83K, because our daughter is above the age of 24, and will not qualify as a dependent on our taxes.
So as it stands right now, the Marketplace is giving out incorrect information. Even if our daughter can legally be included in our Health Care Coverage, our max. adjusted gross income would have had to stay below $83,000, not $100,400. If we would have known this when we signed up, we would have found insurance somewhere else. In our case, this difference means we will have to pay back the entire health care premium of $24K.
I have looked in to the allocation of premium which can be done on Form 8962.
Any suggestions is greatly appreciated.
If you underestimated your income- and most now pay back the subsidy- will you be charged interest?
No, you will not be charged interest if you pay back the amount owed when your taxes are due. Many stock brokers underestimate their income and use this as a 0% loan.
Haven't read all the comments but the article is complete BS. A $500 change in income can cost you 10K...that's a fact. I have a small business run from home. Do my taxes with online software. After inputting everything it came out about right compared to what I paid for quarterlies. We have always qualified for subsidies once I contribute to IRAs and my business 401K. Had a really good year so when I input the ACA info...bam from a 2K refund to owing 12K. So I began contributing to my 401K (a lot) and got to a point where less than a $500 addition made the difference between what had come down to either the 2K refund or 8K payment. Needless to say I was going to figure out a way to contribute all that I had input for the 401K. Even made a video of the process as to how stupid ACA is. Then found a good plan outside the ACA (since there is no penalty now) for a whole lot less that meets our needs. It's actually the UCA...unaffordable care act. Trash!
If you underestimated your income- and most now pay back the subsidy- to IRS during tax filling.
that's every one knows.
but diffrent income will have diffrent deductible with the same plan(silver). it could be vary from 650 deductible to 6500 deductible.
If you forget to report a change, then during this period, you go to the hospital and took a surgery, with your old insurance card( the one which you applicated with 20k/year income, with 650 deductible), but acturally based on your actural income, lets say 55000 MAGI, your plan's deductible should be 6500 not 650. how to give the balance back to insurance company??
Hi! My husband was recently laid off. His employer offered to pay him 12 work weeks plus his PTO hours. Estimating the amount it seems we are $5 - 6,000 over the amount ($44,929) I estimated for 2019. I just tried calling and explain the situation but they weren’t much help me since he was laid off which is a life change, but he’s still getting an income (12 weeks plus PTO hours). What should I do?
If your husband is still being covered on the company health plan, we would not be eligible for a marketplace plan until it is terminate. (If that's the case, you should always apply for a new plan before the term date).
It sounds like some miscommunication on the marketplace and something we'd be happy to help you with by calling our main office (312) 726-6565 or scheduling an appointment.
I enrolled my family on the exchange for 2019. We came in at 326% of the poverty level and qualified for a subsidy which we used at 100%
On November 15th we were informed by my husband's employer that he would receive a 3000 dollar bonus.
Wanting to be honest, we updated our marketplace account. This brought us to 339% so no change in our bracket.
What we didnt realize..and what wasn't posted anywhere (we found out from a rep) was that the system updates once the next year's open enrollment is open.
Since silver plans in our area will decrease in price for 2020, subsidy decreases.
So when the change went through it states we should have received 4 thousand less then we did in subsidies.
Marketplace has admitted that the change shouldn't have been processed but they say they cant UN process it.
So what should have been probably less then 1000 overpayment looks like 4000.
How does this work when we go to file?
Will it reflect the original 2019 pricing from January to October?
Will the whole year be processed with the updated November rates?
Since we are below 400% will we at least be capped at $2500?
We're having a hard time getting answers and want to prepare for tax time.
Your best option will be to talk to a tax professional. They will be able to walk you through all your options.
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