Can ACA subsidies exceed total federal taxes?

[RedmondStash]

I'm trying to wrap my head around ACA subsidies.

If your MAGI is in the range that would make you eligible for an ACA subsidy, *but* your total federal tax burden for that year is less than the subsidies would be for that year, do you still get the full subsidy?

Since the subsidy is a tax credit, I'm assuming that you can't end up in a situation where you can claim, say, $6,000 in ACA subsidies for a year in which you only owed $2,000 in federal taxes.

This could happen if your income is mostly LTCG, or partly Social Security benefits. (An older spouse could be eligible for SS benefits while a younger spouse still needs an ACA health plan because they're not yet 65.)

So then would the total subsidies (or tax credit) you're eligible for be limited to your total federal tax bill for the year? Are there other factors I'm not taking into account?

Thanks.

[nalor511]

ACA PTC is refundable. If you have a $2k tax Biden and are due a $6k PTC on your taxes, you still get a $4k refund. You can confirm this by mocking up a return using last year's tax software.

[RedmondStash]

ACA PTC is refundable. If you have a $2k tax Biden and are due a $6k PTC on your taxes, you still get a $4k refund. You can confirm this by mocking up a return using last year's tax software.

So your ACA subsidy *can* be bigger than your tax bill for that year? That's really interesting, if counterintuitive. Thanks.

Will try the mockup with last year's tax software.

[geekette]

Our premium tax credit is generally more than our taxable income.

[RedmondStash]

Our premium tax credit is generally more than our taxable income.

@geekette , That's really good to hear, and really helpful. Thanks.

[secondcor521]

@nalor511 is correct.  Any excess ACA subsidy is treated pretty much like excess withholding.  It ends up flowing from Form 8962 line 26 to Schedule 3 line 9 to Form 1040 line 31, and there are no limiting statements in there that I know of.

That being said, I personally have my ACA subsidy paid to my health insurance company on a monthly basis as APTC based on an estimate of my AGI that I provide.  Because my estimated AGI is close to my actual AGI, my excess ACA subsidy is small.  In other words, most of my subsidy is paid out throughout the year, not refunded to me on my tax return.

In 2021, my ACA subsidy (Form 8962 line 24) was approximately 5 times my federal tax liability (Form 1040 line 24).

In 2020, my ACA subsidy was approximately 2,000 times my federal tax liability, but that was because my federal tax liability that year was very very small.

[nalor511]

@nalor511 is correct.  Any excess ACA subsidy is treated pretty much like excess withholding.  It ends up flowing from Form 8962 line 26 to Schedule 3 line 9 to Form 1040 line 31, and there are no limiting statements in there that I know of.

That being said, I personally have my ACA subsidy paid to my health insurance company on a monthly basis as APTC based on an estimate of my AGI that I provide.  Because my estimated AGI is close to my actual AGI, my excess ACA subsidy is small.  In other words, most of my subsidy is paid out throughout the year, not refunded to me on my tax return.

In 2021, my ACA subsidy (Form 8962 line 24) was approximately 5 times my federal tax liability (Form 1040 line 24).

In 2020, my ACA subsidy was approximately 2,000 times my federal tax liability, but that was because my federal tax liability that year was very very small.

I pay my healthcare company in full every month, because my debit card gives me 4% cash back. Then I get the PTC back at tax time

[secondcor521]

^^ Good idea.

[jamaicaspanish]

I pay my healthcare company in full every month, because my debit card gives me 4% cash back. Then I get the PTC back at tax time

Same ... but I also use the premium to meet minimum spends to get sign up bonuses on new credit cards

[bacchi]

I pay my healthcare company in full every month, because my debit card gives me 4% cash back. Then I get the PTC back at tax time

Same ... but I also use the premium to meet minimum spends to get sign up bonuses on new credit cards

Oh, nice idea. ...You'd need the cash upfront to do this but only once. When the subsidy drops at tax time, it goes into a savings account to use during the year.

Now I need to make sure next year's insurer takes cards.

[RedmondStash]

OP here -- such useful info & ideas. Thanks so much, everyone!

[RedmondStash]

But wait, there's more --

If you don't take the monthly subsidy, I'm assuming you estimate a higher expected income level. Does that jeopardize other benefits like cost-sharing or state-related benefits?

For instance, Washington state has a "Cascade Care" benefit up to a specified level of income; I don't know if they could be retroactive at tax-time the following year.

[bacchi]

But wait, there's more --

If you don't take the monthly subsidy, I'm assuming you estimate a higher expected income level. Does that jeopardize other benefits like cost-sharing or state-related benefits?

For instance, Washington state has a "Cascade Care" benefit up to a specified level of income; I don't know if they could be retroactive at tax-time the following year.

Same income but you can choose to take all or part of your subsidies when you sign up.

[RedmondStash]

But wait, there's more --

If you don't take the monthly subsidy, I'm assuming you estimate a higher expected income level. Does that jeopardize other benefits like cost-sharing or state-related benefits?

For instance, Washington state has a "Cascade Care" benefit up to a specified level of income; I don't know if they could be retroactive at tax-time the following year.

Same income but you can choose to take all or part of your subsidies when you sign up.

Got it, thanks.

[EchoStache]

I pay my healthcare company in full every month, because my debit card gives me 4% cash back. Then I get the PTC back at tax time

4% cash back using a debit card is amazing!  Care to share?  I'm still not sure this would be the best option for me as I cannot use my debit card for over half my monthly expenses.  So as of now, using an account that pays 1.6% on my balance which works well for me as I tend to hold around $6k in checking.


To get back into the ballpark of the topic, does anyone know if ACA insurance can be held if employer offers insurance?  What I've read says no.

[secondcor521]

To get back into the ballpark of the topic, does anyone know if ACA insurance can be held if employer offers insurance?  What I've read says no.

One can buy ACA insurance if the employer's insurance is considered unaffordable.  Employer's insurance is considered unaffordable if the employee's portion of the premium is more than 9.61% of their household AGI for 2022.  The percentage changes slightly from year to year.  See bottom of the first column of page 4 of the instructions for Form 8962 here:  https://www.irs.gov/pub/irs-dft/i8962--dft.pdf.  Employer coverage also has to meet certain requirements.

Most large employers' health insurance meets these requirements and so most of the time their employees do not qualify for ACA.

For employees with families, there was a "family glitch" where the above rule was the rule, and the family premium was irrelevant.  New rules fixing the family glitch have been proposed which appear to go into effect starting in 2023.

[lifeisshort123]

Yes, and fixing the family glitch is very important.  It may prove to be Biden’s most important domestic achievement, if implemented properly.