In a perfect world, everything will come out evenly when you file your taxes: You would have been exactly on the mark with the income estimate you gave at enrollment, and the credit due will equal the payments you received. But if the advance payments you received don't add up to the full credit you were due, you'll get a refund. If the reverse happens, you'll owe some money. And if your income doesn't end up being the same as the estimate you gave when you enrolled, the IRS will make the necessary adjustments.
But we all know things aren't always so easy when we're talking taxes. A lot can happen in the months between when you enroll and when the final assessment is made. New babies, new jobs, raises, pay cuts, interstate moves -- they'll all have an impact on your tax credit. This is why the government urges all enrollees to inform the marketplace of any life changes that happen over the course of the year. It's better to make small adjustments to your credit as you go than to get a possibly unwelcome surprise in April.
If it turns out that your income is higher than what you thought it would be -- or if there was another reason you received more credit than you were supposed to -- you will have to repay the IRS. But there is a cap on the amount you'll owe, based on your income not exceeding 400 percent of the poverty line. Individual taxpayers would pay $300 to $1,250, and a married couple would owe between $600 and $2,500 in 2014, based on where they fall on this scale [source: Kaiser Family Foundation]. But if they ended up making more than 400 percent of the poverty line, there is no cap and the full amount would have to be repaid.
And beware, potential tax evaders: If you don't file a tax return for the year you received the credit, you no longer qualify for further ACA tax credits.
For more information on the Affordable Care Act tax credit, take a look at the links below.
Author's Note: How the ACA Tax Credit Works
As a freelancer who does not have adequate and affordable health care offered through my job(s), count me in as a fan of this tax credit!
- Angeles, January. "Making Health Care More Affordable: The New Premium and Cost-Sharing Assistance." Center on Budget and Policy Priorities, April 3, 2013. (Nov. 11, 2014) http://www.cbpp.org/cms/?fa=view&id=3190
- Center on Budget and Policy Priorities. "Premium Tax Credits: Answers to Frequently Asked Questions." July 2013. (Nov. 6, 2014) http://www.cbpp.org/files/QA-on-Premium-Credits.pdf
- Clark & Associates. "IRS Increases Percentage for Determining Affordability Under the ACA for 2015." Health Care Reform Bulletin. (Nov. 20, 2014) http://clarkandassoc.com/clark-and-associates/wp-content/uploads/sites/2/2014/09/108128-IRS-Increases-Percentage-for-Determining-Affordabiliy-Under-the-ACA-for-2015-8-7-14.pdf
- Consumer Reports. "Health Tax Credits Tool." (Nov. 6, 2014) https://www.healthtaxcredittool.org/
- HealthCare.gov. "Health Plan Categories." (Nov. 11, 2014) https://www.healthcare.gov/glossary/health-plan-categories/
- IRS. "The Premium Tax Credit." (Nov. 6, 2014) http://www.irs.gov/uac/The-Premium-Tax-Credit
- IRS. "Questions and Answers on the Premium Tax Credit." (Nov. 6, 2014) http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-the-Premium-Tax-Credit
- Kaiser Family Foundation. "Explaining Health Care Reform: Questions about Health Insurance Subsidies." Oct. 27, 2014. (Nov. 6, 2014) http://kff.org/health-reform/issue-brief/explaining-health-care-reform-questions-about-health/
- Touschner, Joe. "Figuring Out Premium Tax Credits." Georgetown University Health Policy Institute, June 17, 2013. (Nov. 6, 2014) http://ccf.georgetown.edu/all/figuring-out-premium-tax-credits/