Recent Tax Updates

Change in Income or Family Size During 2014 and the Advanced Premium Tax Credit (Subsidy)

April 30, 2014

For individuals that received an advanced premium tax credit (subsidy) to help pay for their 2014 health insurance premiums, it is important to report any change in their circumstances (such as in their income or family size) to the Health Insurance Marketplace (Exchange) where they obtained their insurance. This is important because any change in circumstances for an individual can affect the subsidy amount that was calculated when they first signed up for health insurance.

The subsidy is actually an advance of the 2014 premium tax credit which is paid directly to an individual’s health insurance provider each month. This amount will be reconciled with the actual premium tax credit that will be calculated on the individual’s 2014 federal return (which is based on the 2014 income and family size reported on it).

The impact of this reconciliation to the individual is as follows:

  • A refundable credit will occur if the actual credit is greater than the subsidy received.
  • An additional tax will be due if the subsidy received is greater than the actual credit.

Therefore, if an individual’s income or family size changes from what was used when signing up for health insurance on an Exchange, it may have an impact on the amount of assistance they are receiving to help pay for their health insurance premiums. Reporting these changes will help them avoid getting too much subsidy during the year and thus owing additional tax on their 2014 federal return.

Read IRS Health Care Tip 2014-07 (Changes in Circumstances can Affect your Premium Tax Credit) for more information.