2024 2025 Cap on Paying Again ACA Well being Insurance coverage Subsidy

[Updated on August 30, 2024.]

The ACA medical health insurance subsidy, aka the premium tax credit score, is about up such that, for essentially the most half, it doesn’t matter how a lot subsidy you obtain upfront if you enroll. The upfront subsidy is barely an estimate. The ultimate subsidy might be squared up if you file your tax return subsequent yr.

In the event you didn’t obtain the subsidy if you enrolled however your precise revenue qualifies, you get the subsidy as a tax credit score if you file your tax return. If the federal government paid extra subsidies than your precise revenue qualifies for, you pay again the distinction in your tax return.

Reimbursement Cap

There’s a cap on how a lot you might want to pay again. The cap varies relying in your Modified Adjusted Gross Earnings (MAGI) relative to the Federal Poverty Degree (FPL) and your tax submitting standing. It’s additionally adjusted for inflation every year. Listed here are the caps on paying again the subsidy for 2024 and 2025.

Supply: IRS Rev. Proc. 2023-34, creator’s calculations.

No Cap Above 400% of FPL

The compensation caps in 2024 and 2025 apply solely when your precise revenue is beneath 400% of FPL. There’s no compensation cap in case your precise revenue exceeds 400% of FPL — you’ll have to pay again 100% of the distinction between what you acquired and what your precise revenue qualifies for.

Massive Change in Earnings

The caps are additionally set sufficiently excessive such that the quantity you might want to pay again will fall beneath the cap until there’s a giant distinction between your precise revenue and your estimated revenue on the time of enrollment.

For instance, suppose you’re married submitting collectively and also you estimated your revenue can be $50,000 in 2024 if you enrolled. Suppose by the point you file your tax return, your revenue seems to be $60,000. As a result of your revenue is $10,000 greater than you initially estimated, you qualify for a decrease subsidy now. You may be required to pay again the $1,596 distinction. The cap doesn’t actually enable you as a result of this $1,596 distinction is nicely below the $3,150 compensation cap.

As well as, since you’re required to inform the healthcare market of your revenue modifications through the yr in a well timed method in order that they’ll alter your advance subsidy, usually the distinction between the advance subsidy you acquired and the subsidy you lastly qualify for must be nicely below the cap. The cap helps solely when your revenue will increase near the top of the yr to make it too late to regulate your advance subsidy.

Simpler for Singles

Nonetheless, a late revenue change can occur, and the change may be giant sufficient to make the distinction within the medical health insurance subsidy greater than the compensation cap. That is true particularly if you’re single with a decrease compensation cap.

For instance, suppose you’re single and also you estimated your revenue can be $30,000 in 2024 if you enrolled. Suppose in December 2024 you resolve to transform $20,000 from a Conventional IRA to a Roth IRA. This pushes your revenue to $50,000. The additional $20,000 revenue lowers your medical health insurance subsidy by $2,866, however as a result of your compensation cap is $1,575, you solely must pay again $1,575. You get to maintain the opposite $1,291. On this case, you’re higher off asking for the subsidy upfront throughout enrollment. In the event you solely wait till you file your tax return, you gained’t profit from the compensation cap.

Backside line: It’s best to attempt to estimate your revenue conservatively and qualify for as a lot subsidy as you may upfront if you enroll. Perhaps it gained’t assist. Perhaps it’ll.