What Happens to Tax Credits if Your Income Changes Mid-Year?

What Happens to Tax Credits if Your Income Changes Mid-Year?

As you navigate the complexities of the Affordable Care Act (ACA) marketplace, it’s essential to understand how changes in your income affect your eligibility for tax credits. Let’s explore a scenario and its implications.


You lose your employer-based insurance in August and enroll in an ACA plan in September. Your income for the remaining months is significantly lower, qualifying you for a tax credit based on your Sept-Dec income. However, your annual income for Jan-Aug was much higher. Will you have to repay the tax credit?

Understanding the Rules:

The answer is yes. Unfortunately, the IRS considers annual income over the entire calendar year, regardless of when you enroll in an ACA plan. This means that even if your income is lower during the period you’re enrolled, your annual income may still disqualify you from the full tax credit.

Consequences of Income Changes:

If your income decreases mid-year and you enroll in an ACA plan, you may receive tax credits based on your projected income for the remaining months. However, if your actual annual income exceeds the threshold for the credit, you will have to repay some or all of the tax credits when you file your taxes.

Proactive Steps:

To avoid surprises or penalties, it’s crucial to proactively monitor your income throughout the year. If you anticipate a significant income change, you can either:

Adjust your estimated tax credits: When you enroll in an ACA plan, you can estimate your annual income for the entire year. If you foresee a decrease, consider adjusting your estimated income to avoid overestimating the tax credits.
Make mid-year changes: If your income changes significantly, you can contact HealthCare.gov to make adjustments to your ACA plan and tax credits. This ensures that you receive the appropriate level of support based on your current financial situation.


Understanding the impact of income changes on your ACA tax credits is essential. Always consult with a licensed insurance agent or visit HealthCare.gov to ensure you are getting the most accurate information and support. By being proactive and aware of the rules, you can make informed decisions that protect your financial well-being.

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