IRS: Assess Changes Now That May Affect Your Premium Tax Credit

Certain “changes in circumstances,” such as in household income or family size, could alter how much eligible taxpayers receive in health insurance premium tax credits, the IRS cautioned on Friday.

In its July 18 “Tax Tips” e-newsletter, the IRS recommended that qualified taxpayers conduct a  “midyear checkup” to determine if an adjustment is needed on the amount of premium assistance they are receiving.

Premium Tax Credit Hearing

Representative Charles Boustany Jr. (R-LA) announced that the House Ways and Means Oversight subcommittee will hold a hearing at 10:30 a.m. ET on July 23 that will explore the integrity of the premium tax credit verification system and whether it is vulnerable to fraud, waste, and abuse.

The US Government Accountability Office (GAO) will be the only witness at the hearing.

“In recent years, this subcommittee has examined fraud, waste, and abuse in the execution of existing programs, such as the Earned Income Tax Credit,” Boustany said in a written statement. “We know that the federal government wastes tens of billions of dollars each year in improper payments. What we don’t know is how much more will be wasted under Obamacare’s new federal subsidies. We look forward to hearing from GAO and examining what is happening now that the subsidies are going out the door.”

Under the Affordable Care Act, tax credits are available to subsidize premiums for people who buy their insurance through state-operated health insurance marketplaces, do not have access to other affordable coverage, and have incomes between 100 percent and 400 percent of the federal poverty level. Eligible taxpayers receive advanced payments of the premium tax credit, which are then paid directly to their insurance company to lower premiums.

Americans who purchased their own health insurance through the individual market last year were expected to receive tax credits averaging nearly $2,700 this year for coverage purchased through the health insurance marketplaces, according to a 2013 Kaiser Family Foundation study.

However, if a taxpayer experiences a significant life-changing event after they signed up for health insurance, that change in circumstances should be reported to their health insurance marketplace, the IRS noted.

Examples of changes in circumstances that should be reported include:

  • Increase or decrease in your income
  • Marriage or divorce
  • Birth or adoption of a child
  • Starting a job with health insurance
  • Gaining or losing your eligibility for other healthcare coverage
  • Changing your residence

“Reporting the changes will help you avoid getting too much or too little advance payment of the premium tax credit,” the IRS said in the e-newsletter. “Getting too much means you may owe additional money or get a smaller refund when you file your taxes. Getting too little could mean missing out on premium assistance to reduce your monthly premiums.”

Repayments of excess premium assistance may be limited to an amount between $400 and $2,500, depending on a taxpayer’s income and filing status. However, if advance payment of the premium tax credit was made but the taxpayer’s income for the year turns out to be too high to receive the premium tax credit, that person will have to repay all of the payments that were made on his or her behalf, with no limitation.

“Therefore, it is important that you report changes in circumstances that may have occurred since you signed up for your plan,” the IRS added.

Changes in circumstances also may qualify a taxpayer for a special enrollment period to change or receive insurance through the marketplace.

“In most cases, if you qualify for the special enrollment period, you will have 60 days to enroll following the change in circumstances,” the IRS said.

More information about special enrollment can be found on More information about the premium tax credit and other tax-related provisions of the healthcare law can be found on the IRS website.

Related articles:

Study: Tax Credits for Obamacare Expected to Average $2,700
Treasury Issues New Guidelines on Health Insurance Premium Tax Credits

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