income cap

If your income is trending much higher this year than you anticipated, it's likely a welcome shift.

However, for anyone who gets their private health insurance through the public marketplace, that extra cash could mean an unexpected tax bill when they prepare their 2022 return next spring. A midyear income check could help avoid that.

Basically, if you receive premium subsidies (technically, advance tax credits) through the marketplace, having annual income that's higher than what you estimated when you enrolled could mean you're not entitled to as much aid as you're receiving. And any overage would need to be paid back at tax time.

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Roughly 89% (12.9 million) of the 14.5 million people enrolled in private health insurance through the public marketplace — which was authorized by the Affordable Care Act of 2010 — are receiving subsidies. Generally speaking, people who get coverage this way — either through healthcare.gov or their state's exchange — are those who can't get workplace insurance or who don't qualify for Medicaid or Medicare.

Subsidies through the exchange were expanded for 2021 and 2022 due to the American Rescue Plan Act of 2021. (Senate Democrats are trying to get the current expansion extended for two more years, although it's still uncertain whether it will happen.)

Prior to the temporary expansion, the aid was generally available to households with income from 100% to 400% of the federal poverty level.

The cap on income was eliminated for 2021 and 2022, and the amount that anyone pays in premiums is currently limited to 8.5% of their income as calculated by the exchange. 

The temporary removal of the income cap means there may not be as many cases of people having to repay all of their subsidies: Before, if someone estimated their income was at 399% of poverty but it ended up at 401%, they'd have to account for those subsidies on their tax return.

"It's still important to report an income change to avoid any kind of surprise, but hopefully the worst kinds of surprises won't happen as much this year," Cox said.

When you start getting tax forms early in 2023 (for example, your W-2, or 1099 forms due to interest or dividend income), one of them generally will be a Form 1095-A from the insurance marketplace, which details how much you received each month in tax credits.

That document is then used to complete Form 8962, which shows whether you received the correct amount in subsidies — and if not, what the excess or shortfall is, Esposito said.

Any amount you weren't eligible for would reduce your refund or increase the amount of tax you owe. Likewise, if you are entitled to more than you received, the difference will either increase your refund or lower the amount of tax you owe.