Your premium tax credit is paid in advance, based on an estimate. At tax time the estimate is compared against what you actually earned. That comparison is called reconciliation, and it is the part of Marketplace coverage people are least prepared for.
It is not a penalty and it is not an audit. It is arithmetic. This guide explains it and, more usefully, how to keep the number small.
How it works
When you file, you complete a form that reconciles the credit. Three outcomes:
You earned roughly what you estimated. Nothing much happens. This is the common case for people who report changes during the year.
You earned less than you estimated. You were entitled to more credit than you received, and the difference comes back to you as part of your refund.
You earned more than you estimated. You received more credit than you were entitled to, and some or all of the excess is repaid through your return. Repayment is limited for some households and not for others, depending on income — which is exactly the kind of figure that changes annually, so check the current rules rather than assuming.
The form that arrives in the post
Each January the Marketplace sends a statement setting out what plan you had, for which months, and how much advance credit was paid.
You need it to file. Keep it with your tax documents. If it has not arrived by the time you are ready to file, you can download it from your HealthCare.gov account or telephone the Marketplace Call Center.
Check it against your own records. Months of coverage and the amounts should match what actually happened. Errors are uncommon and not unknown, and correcting one before you file is far easier than afterwards.
How to keep the settlement small
Report changes when they happen. This is the whole answer, and it is worth repeating because almost nobody does it. A raise, a new job, a contract ending, a marriage, a birth, someone joining or leaving your tax household. Report it and the credit adjusts going forward, so the year ends close to where the estimate started.
Diarise a mid-year check. Around the middle of the year, compare where you actually are against the estimate. If it is drifting, revise then. A correction in July costs you six months of adjustment; a correction in December costs you the whole year.
Estimate towards the middle. When income is genuinely unpredictable, an estimate at the optimistic end produces a repayment and an estimate at the cautious end produces a refund. Most households find the second easier to live with.
Take less than the full credit in advance if you prefer. You may choose to have only part of the credit paid to the insurer through the year and claim the rest when you file. It costs more each month and it removes the repayment risk entirely. For very volatile incomes it is worth considering.
Two things worth knowing
You must file to keep the credit. If you received an advance credit and do not file a return, you can be found ineligible for a credit in future years. This catches people who are not otherwise required to file.
Married filing separately generally does not work. With narrow exceptions, a married couple must file jointly to receive a premium tax credit. If your filing status is likely to change, raise it before you enroll rather than after.
If you owe and cannot pay it
Talk to the tax authority rather than ignoring it. Payment arrangements exist and are ordinary.
Then fix the cause: update your income estimate for the current year straight away, so the same thing does not happen twice.
Where to get help
The reconciliation itself is a tax question, and we are insurance agents rather than tax preparers. For the return, speak to whoever prepares it, or to a free tax assistance programme if you qualify.
For the coverage side — updating an estimate, correcting a statement, understanding what was paid — HealthCare.gov and the Marketplace Call Center on 1-800-318-2596 (TTY 1-855-889-4325) can help, free, at any hour. So can Navigators and certified application counselors at localhelp.healthcare.gov.
And if we placed your plan, telephone us. Updating an income estimate takes about ten minutes and there is no charge for it.
General information, not advice
This guide describes how Marketplace coverage generally works. It is not advice about your situation, and rules and figures change — verify anything that matters to a decision against HealthCare.gov or the Marketplace Call Center on 1-800-318-2596 (TTY 1-855-889-4325), both free.
Heartland Coverage Partners LLC is not the Health Insurance Marketplace, not HealthCare.gov, and not connected with or endorsed by the United States government. We do not offer every plan available in your area.
