Repaying Subsidy Overpayments

Repaying Subsidy Overpayments

by Posted on: August 18, 2014Categories: HR & Compliance   

To help eligible families and individuals purchase health insurance through an exchange, premium tax credits and cost-sharing reductions were created. These subsidies reduce the out-of-pocket premium costs making coverage more affordable. These subsidies became available at the beginning of 2014 and will be available during the 2015 open enrollment period beginning November 15, 2014. Both subsidies are calculated by the taxpayer’s household income and family size based on taxable year and federal income tax return. If the income must be determined before the individual files their tax return, the Exchange will use an application to project their income or will rely on the previous year’s federal income tax return.


Premium Tax Credits Overview

  • Available for people with higher incomes (up to 400 percent of the federal poverty level)
  • Reduce out-of-pocket costs for taxpayers


Reduced Cost-Sharing Overview

  • Available for people with lower incomes (up to 250 percent of the federal poverty level)
  • Reduce out-of-pocket costs at the point of service meaning they can enroll in plans with higher actuarial values while the plan pays a greater share of the coverage


Both payments are refundable and advanceable even if an individual has no tax liability. Advance payments are made on the family’s behalf directly to the insurance company and are reconciled against the amount of the family’s actual premium tax credit. Taxpayer’s repayment may have a cap if their income is under 400 percent of the federal poverty level. At the end of each year the subsidy amount will be calculated. If the taxpayer’s income has increased and they received a larger subsidy than they were supposed to, the taxpayer may have to repay part of their subsidy. If based on household income, the taxpayer will receive the excess as an income tax refund. Taxpayers must also account for the reconciliation of their family member’s coverage.


If the taxpayer received excess premium tax credits, they must repay them as an additional income tax liability unless they have a household income of less than 400 percent the federal poverty level. Anyone above 400 percent will have to repay the entire amount. Beginning in 2015, the limits on additional tax may be adjusted to reflect changes in the consumer price index.


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