How to Estimate Your Expected Income When Applying for a Premium Tax Credit
Important Note: The Inflation Reduction Act of 2022 extended the Enhanced Premium Tax Credits that began in April of 2021. The Enhanced Premium Tax Credits are available through 2025. With the enhancement, there is no set maximum income threshold to qualify for a premium tax credit. Eligibility is determined by the result of a complex equation that includes your household income and size (only what is reflected on your Federal tax return), cost of plans in your home zip code and how many people in your family are enrolling in marketplace coverage. Do not assume that your income is too high, even if it has been previously! Most people qualify for a premium tax credit.
Step 1. Start with your household’s adjusted gross income (AGI) from your most recent federal income tax return. You'll find your AGI on line 7 of IRS Form 1040.
Don’t have recent AGI? See another way to estimate your income.
If you are self-employed, read more about reporting self-employment
Step 2. Add the following kinds of income, if you have any, to your AGI:
· Tax-exempt foreign income
· Tax-exempt Social Security benefits (including tier 1 railroad retirement benefits)
· Tax-exempt interest
· Do not include Supplemental Security Income (SSI).
Step 3. Adjust your estimate for any changes you expect.
Consider things like these for all members of your household:
· Expected raises
· New jobs or other employment changes, including changes to work schedule or self-employment income
· Changes to income from other sources, like Social Security or investments
· Changes in your household, like gaining or losing dependents. Gaining or losing a dependent can have a big impact on your savings.
**Remember, you are estimating your AGI for tax year 2023. You can use a previous tax return as an example but make any applicable adjustments for the coming year.
-Keep reading for additional info-
Premium Tax Credit Reconciliation
Premium tax credits can make the Marketplace (aka Obamacare) plan premiums affordable but accepting the premium tax credit is something you must do cautiously.
When applying for a Marketplace plan, you will be given an option to see if you qualify for a premium tax credit. You will be asked to estimate your income for 2023 and the amount of subsidy you are eligible for will be determined based on the estimated income you provide.
When you file your income tax return in 2023, the IRS will retroactively reconcile the premium subsidy you received with what your income ended up being for 2023.
If you estimate too low, you will owe the IRS (or they will withhold from your return) the difference between the subsidy you received based on your estimate and the subsidy you qualified for based on your actual income.
You can choose to not apply your full premium tax credit if you are worried that your income might be higher than your estimate.
If you are concerned about owing back the premium tax credit, lets talk about options that are affordable without that risk).
When the IRS does the reconciliation, if you over estimated your income and should have received a higher subsidy than what was applied to your premium, you will receive that amount in the form of a refund on your income tax return.
If you are a member of a Federally Recognized Alaskan or Native American Tribe and have a membership card, you have special rules for the Marketplace like open enrollment every month and $0 cost share if your income falls under the 300% threshold. Be sure that you indicate that you are a tribal member during the premium tax credit application process.
Calculator for Premium Tax Credit: