Do You Owe Uncle Sam Because of Your ACA Health Insurance? It’s Not Uncommon

If you recently filed your taxes and were surprised to receive a bill from the IRS because of your health insurance, it’s not uncommon, especially if you have your health insurance through the Health Insurance Marketplace, formerly known as Obamacare. Let me explain why this may have happened and what you can do about it.

What is the Premium Tax Credit?

When you sign up for health insurance through the Marketplace, you may be eligible for a premium tax credit (PTC), which is a subsidy that helps lower your monthly health insurance premiums. The amount of the PTC you receive is based on your income and family size.

What Caused the Tax Bill?

To get the PTC, you need to estimate your income for the year since the credit is based on your income. If your actual income ends up being more than you estimated, you may have received more PTC than you were entitled to. In this case, you will need to repay some of the PTC when you file your taxes.

How to Avoid Owing Taxes Next Year

To avoid owing taxes next year because of the PTC, there are a few things you can do:

1. Estimate your income accurately. When you sign up for health insurance through the Marketplace, you will need to estimate your income for the year. It’s important to estimate your income as accurately as possible to avoid having to repay the PTC when you file your taxes.
2. Update your income information. If your income changes during the year, you should update your information with the Marketplace. This will help ensure that you receive the correct amount of PTC.
3. Choose a plan with a lower premium. If you are concerned about owing taxes because of the PTC, you may want to choose a health insurance plan with a lower premium. This will reduce the amount of PTC you receive and make it less likely that you will have to repay taxes.

What to Do If You Owe Taxes

If you owe taxes because of the PTC, you can repay the taxes when you file your taxes. You can also choose to make estimated tax payments during the year to avoid owing a large amount of taxes when you file.

If you received the PTC and your income was significantly lower than you estimated, you may be eligible for a refund of the PTC. You can claim the refund when you file your taxes.

Conclusion

Owing taxes because of the PTC is not uncommon. But by understanding how the PTC works and taking steps to avoid owing taxes, you can avoid this unpleasant surprise when you file your taxes.