“Premium Assistance Tax Credit” and Tax Returns

Note:  This was originally written in 2015, but dates, etc.,  have been updated on the written version only in November 2024.

This is a hot topic as more people become aware of how the health care premium assistance will affect their income tax return.

Watch the video below to learn more about how the premium assistance tax credit may affect you:

For those who purchased insurance through a state exchange or through Healthcare.gov, many received some sort of health care premium assistance.

When you signed up for insurance, you had the option whether to receive an advanced premium assistance on a monthly basis and thus reduce your monthly payments on health insurance or to wait and receive it all at the end of the year when you file your tax return. (Some refer to this a “premium assistance tax credit.”) Obviously, most people chose to receive it ahead of time and reduce your monthly payments.

What many may not have realized is that all of this will be handled and reconciled through the year-end tax return. For most people who signed up, their income level was determined based upon their 2022 tax return and other information they provided. This was used to help determine what their 2024 AGI would be and to help determine the amount of credit that they qualified for.

However, and this is key, your actual credit is dependent upon your 2024 AGI when you file your 2024 return in early 2025. If you received an advanced premium assistance tax credit to reduce monthly insurance premiums throughout 2024, you will have to reconcile the amounts you actually received with the amounts your should have received based upon your 2024 tax return. For instance, if your income was higher than you anticipated, you will likely have to pay some of the advanced credit back. On the other hand, if your income was lower than you projected when you applied for health care on healthcare.gov, you will probably receive an additional credit and thus get a larger refund (or owe less tax).

Note: We have seen some people who cashed out a retirement plan or sold a rental property ending up having to repay the entire advanced premium credit, since it made their income significantly higher.  Be aware, all income received in the year affects the potential repayment of the premium credit.

The key is that the advanced premium credit that you received on a monthly basis was an estimate. And it was based on 2022 information and other information you provided when you signed up for health insurance. The estimate is only as accurate as the information you provided to the exchange. Your actual credit will be determined when you file your 2024 return, and some may have to repay some of the credit while others may get more. Hopefully, in most cases the estimate and the actual will be pretty close.

For more information, please feel free to call to discuss how the premium assistance tax credit will affect your 2024 tax return. 254-432-5724.