How Will Getting Married Affect Your Premium Tax Credit?
Nearly 10 million Americans receive premium tax credits (premium subsidies) to offset the cost of health insurance purchased in the exchanges.1 Premium tax credits cover a significant portion of most enrollees’ premiums, making self-purchased health insurance much more affordable than it would otherwise be.
Premium tax credits are based on an ACA-specific version of modified adjusted gross household income (MAGI), but how does that work if you get married mid-way through the year? Married couples have to file a joint tax return in order to qualify for a premium tax credit.2 If you get married mid-year, your premium tax credit eligibility is going to be based on your total combined income.
Some couples will have an unpleasant surprise if their new combined income exceeds the limits and they claimed that credit upfront before getting married. The good news is that there is an alternative calculation for the year of marriage that may result in a lower subsidy repayment.
How the Premium Tax Credit Works
It would be fairly straightforward if the premium tax credit worked like other tax credits, and was only available to be claimed on your tax return. But the premium tax credit is different. It’s available upfront, paid on your behalf to your health insurance company each month, and this is how most people take the tax credit.
There’s an option to pay full price for a health insurance plan through the exchange and then claim the tax credit in full when you file your tax return, but most people don’t do it that way.
For most exchange enrollees who are eligible for the premium tax credit, full-price health insurance premiums are just too high to pay throughout the year, making it unrealistic for people to wait until they file their tax return to get the money.
A premium tax credit is paid on behalf of most exchange enrollees each month, based on the total income they estimate they’ll have for the year. But then Form 8962 is used to reconcile the premium tax credit when those enrollees file their tax returns.
If it turns out that you should have had a larger premium subsidy, the IRS will pay you the difference at that point (or credit it to the amount you own on your tax return, if applicable). But if it turns out that you should have had a smaller premium subsidy, you’ll have to pay back some or all of the excess amount.
As long as your ACA-specific modified adjusted gross income doesn’t go over 400% of the poverty level, the IRS has a cap on how much of your excess subsidy you’ll be expected to repay. But if your ACA-specific MAGI does end up going over 400% of the poverty level, you have to repay every penny of the subsidy that was paid on your behalf.
That can be a substantial amount. In the 38 states that use HealthCare.gov, the average subsidy amount that’s being paid for enrollees in 2020 is $595 per month.1 For older enrollees and people in areas of the country where health insurance is more expensive than average, the subsidy amounts are much higher than that. Having to repay it to the IRS is a considerable financial hit.
When two people get married, their household income is the combined total of their individual incomes. But the poverty level for a household of two is not double the poverty level for a household of one. This means the combined incomes of two people might be well above the subsidy-eligibility cutoff, even if they would each be subsidy-eligible on their own.
Fortunately, the IRS has an alternative approach for reconciling the premium tax credit for the year of marriage. Depending on the circumstances, it can help an enrollee avoid having to repay the premium subsidy that was paid on their behalf for the months while they were single.
Premium Tax Credits the Year You Get Married
A simplified fictional example helps to show how this works. Ahmad and Alicia, who are both 35 and live in Wyoming, are getting married in September 2020. Neither of them has dependents.
Prior to their wedding, Ahmad has a plan through the health insurance exchange. His income as a single person is $46,000 in 2020. That’s below the $49,960 cutoff for subsidy eligibility for a single person (based on 2019 poverty level numbers).3 Ahmad’s total premium subsidy is $477 per month.
Alicia earns $52,000 and works for an employer that provides affordable health insurance. The couple plans to add Ahmad to her employer’s health plan as of October 1.
Ahmad’s self-purchased health plan will cover him for the first nine months of the year, with the government paying a total of $4,293 in premium tax credits (directly to his health insurer) to offset the cost of his premiums ($477 per month, for nine months).
In the spring of 2021, Ahmad and Alicia file their joint tax return for 2020, which shows a total household income of $98,000 (Ahmad’s $46,000 plus Alicia’s $52,000). A household of two can only earn up to $67,640 an still qualify for premium tax credits for 2020, so Ahmad and Alicia’s household income would be well above that threshold.3
Using the standard IRS rules, Ahmad would have to repay the IRS the full $4,293 that was paid on his behalf. The money would be deducted from any refund that Ahmad and Alicia would otherwise have received; if they owed taxes or didn’t have a sufficient refund to cover that amount, they’d have to pay the money directly to the IRS.
Alternative Calculation for the Year of Marriage
But fortunately for Ahmad and Alicia, the IRS has something called an “alternative calculation for year of marriage,” which is detailed in IRS Publication 974. The alternative calculation is an optional method that people in this situation can use if they’re going to have to pay back some or all of the premium tax credit that was paid on their behalf for the months prior to their marriage.
As is always the case with taxes, we recommend that you seek advice from a certified tax advisor in order to address your specific situation. But as a general overview, the alternative calculation for year of marriage allows you to use half of your total household income when you calculate your premium subsidy for the months prior to your marriage.
This includes the month you get married; in Ahmad and Alicia’s example, Ahmad would be able to use the alternative calculation for the whole nine months of the year that he had self-purchased coverage.
Using the standard calculation, Ahmad and Alicia count as a household of two, which means that premium subsidies would only be available for Ahmad’s January to September coverage if their total household income didn’t exceed $67,640 in 2020.
But using the alternative calculation, Ahmad can be counted as a household of one for those nine months and can use a household income of $49,000 (half of the $98,000 that he and Alicia earned together). The details for these calculations are outlined in Publication 974.
Using those numbers, Ahmad would be eligible for a premium subsidy amount of $452 per month for those nine months when he had a plan through the exchange. (This is specific to Ahmad’s age and Wyoming residence; the amount will vary significantly depending on how old the person is and where they live.)
Ahmad will have to repay the IRS only $225, which is the difference between the $477 per month that was paid on his behalf and the $452 per month amount that he’s actually eligible to receive once the year is over and the final numbers are calculated.
If half of the household income puts the person into the subsidy-eligible range based on their household size before the marriage, it can help to avoid having to pay back some or all of the premium subsidies that were paid on the person’s behalf.
When It Doesn’t Help
It’s important to understand that if Alicia’s income were even a little bit higher—say $55,000 instead of $52,000—the alternative calculation wouldn’t help. Their combined income would be $101,000 in that case, and half of that would be $50,500.
That’s too high for a single person to be eligible for premium subsidies in 2020, so Ahmad would still have had to repay the entire amount of his subsidy in that case.
A couple of important points to keep in mind here: The poverty level increases each year, so the income cutoff for subsidy eligibility for a single person in 2021 will be $51,040.3 Also, contributions to pre-tax retirement accounts and/or health savings accounts will reduce a household’s ACA-specific modified adjusted gross income.
If half of the household’s total income still ends up being more than 400% of the poverty level for the household size that applied before the marriage (one, in Ahmad’s case, but it would be larger if he had dependents), the alternative calculation won’t help.
A Word From Verywell
Knowing how this works can be helpful if you’re planning ahead for a future wedding. If you know that your combined household income will end up being too large to qualify for a premium subsidy even with the alternative calculation, you might prefer to skip the premium subsidy for the months prior to the wedding.
Paying full price for your health insurance might be challenging, but you might find it easier than having to repay the entire premium subsidy when you file your joint tax return the following spring.