If you purchase health insurance through a government-sponsored marketplace, you may receive a tax credit to help pay your health insurance premiums.
However, because the credit is directly sent to your insurance company to offset your premiums, you never see the cash.
For that reason, it can be easy to forget about the credit amount received. If nothing in your financial or family situation changed during the year that may be okay.
But, if things didn’t stay the same, the credit amount you previously qualified for might be different.
Tax refunds can be affected.
Unless you’re a salaried employee, it’s not always easy to predict how much you’ll make in a year.
The same can be said if you’re underemployed, unemployed, self-employed or if you work seasonally.
In that case, you likely estimated your gross income when you applied for health insurance through the marketplace.
When you file your 2020 income tax return, you need to reconcile the amount of tax credit you received with the amount you should have collected based on your actual income for the year. This process can easily be completed through TaxAct’s filing software.
If your reconciliation results in a bigger tax credit than you received, you overestimated your income. The higher you estimate your income, the less credit you are likely to receive.
When this occurs, the difference is included as part of your refund or as a reduction of your total income tax bill.
Of course, the opposite can be true too. If you underestimated your income and qualified for less credit than you used, you may have to pay back some of the credit.
Income adjustments may influence eligibility.
If your income changes at any time during the year, report the adjustment to the Marketplace as soon as possible. Your advanced premium tax credit amount can then be modified, if necessary.
Report changes online by logging in to your account. Alternatively, you can call the Marketplace Call Center at 1-800-318-2596 (TTY: 1-855-889-4325). Do not report a change by sending a letter in the mail.
Life changes make a difference too.
Besides income updates, you should also report life changes to your Marketplace if you use the advanced premium tax credit. Those include:
- Birth or adoption of a child
- Loss of a dependency for a child; for example, when the child strikes out on his own or if the child’s other parent qualifies for the exemption
- Marriage or divorce
- A move
- Change in eligibility for employer or other health care coverage
- Change in disability status
- Other changes to your income and the size of your household