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Why You Must Ensure that Your Healthcare Subsidy is Calculated Correctly

Subsidies offered through Covered California, to assist individuals and families, have helped millions to afford their healthcare premiums over the years. However, these subsidies could have a potential downside if you aren’t careful: If the amount is not calculated correctly, you could be “overpaid” for the year. The consequence will be that you are required to repay the difference between what you received and what you should have received.

This often happens due to an increase in income during the year. Subsidies are calculated based on expected income, according to your family size. The Advance Premium Tax Credit, or APTC, is then paid to your insurer to assist with the cost of your premiums each month. But if your income increases, you could accidentally receive too much subsidy. This fact might be discovered when you log in to the system to reapply for coverage in the fall.

If the system discovers an overpaid APTC, you will be expected to repay all or part of that amount, depending upon your circumstances.

IRS rules are complicated, and certain limits do apply to these situations. For example, overages were not required to be repaid in 2020. And depending upon where your income falls within certain brackets, the amount that you are required to pay can be limited to only a portion of the overage.

The best way to prevent this situation from occurring is to keep track of your income. Record the amount upon which your subsidy was calculated and keep track of your actual earnings. If at any point during the year you discover that your income is likely to exceed the expected amount, log into to calculate your subsidy correctly.

These situations can occur due to a raise, working a lot of overtime, or a change in your spouse’s income. Remember to report changes in household size or income right away, so that you don’t face an unpleasant surprise at tax time the following year.

And if you have any questions about health insurance coverage or subsidies, do give us a call so that we can assist you.

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