Obamacare Tax Credits: The Pay Back Requirements For Underestimating Annual Income

Find out what your pay back obligations are if you underestimate your annual income and receive higher premium assistance payments than you are entitled to.

When you apply for Obamacare through your health insurance exchange, you need to estimate what your family income for 2016 will be. If you estimate it will be below 400% of the federal poverty level for a family your size, you will be eligible to receive a subsidy to help pay your monthly insurance premiums. The amount of the premium assistance is based on your estimated income and the amount of your health insurance premiums. This premium assistance can be worth thousands of dollars per year.

But what happens if it turns out you underestimate your 2016 income? If you already benefited form premium assistance payments, you’ll have to pay them back to the IRS when you file your 2016 income taxes. The amount you’ll have to pay back depends on your 2016 family income. If your 2016 income is below 400% of the federal poverty level, there is a cap on the amount you’ll have to pay back, even if you received more in assistance than the amount of the cap. However, at higher income levels, you’ll have to pay back the entire amount you received, which could be a lot.

The following chart shows how much individuals and families will be required to pay back.


Income, based on federal poverty level Annual Household Income for an Individual Individual Payback of Obamacare Premium Assistance Annual Household Income for a Family of Two Annual Household Income for a Family of Three Annual Household Income for a Family of Four Family Payback of Obamacare Premium Assistance
Less than 200% Under $23,760 Capped at $300 Under $32,040 Under $40,320 Under $48,600 Capped at $600
At or above 200% to 300% $23,761 – $35,640 Capped at $750 $32,041 – $48,060 $40,321 – $60,480 $48,601 – $72,900 Capped at $1,500
At or above 300% to 400% $35,641-$47,520 Capped at $1,250 $48,061 – $64,080 $60,481 – $80,640 $72,901 – $97,200 Capped at $2,500
Greater than 400% $47,521 and higher Full amount received $64,080 and higher $80,641
and higher
$97,201
and higher
Full amount received

One way to avoid having to pay back all or part of your Obamacare premium assistance is to report to your health exchange any changes in your income during the year. The exchange can adjust downward the amount of premium assistance you receive for the remainder of the year.

Another way to avoid having to repay all or part your premium assistance is to elect to have all or part of your premium assistance sent to you as a tax refund when you file your tax return, instead of paid in advance to your health insurer during the year. In other words, you pay the entire amount out of your own pocket during the year, and then you are reimbursed by the amount of premium assistance you qualify for.

For details, see your health insurance exchange. Links to your state exchange are at healthcare.gov.