What happens if I receive a tax credit during the year but end up in the Medicaid gap when I file my taxes?

If you receive an advance premium tax credit (APTC) during the year and later find that your actual annual income is below 100% of the federal poverty level (often referred to as the Medicaid gap), the way your tax credit is handled depends on your circumstances.

Do I have to pay back my tax credit?

In most cases, no.

If your final income ends up below 100% of the federal poverty level when you file your federal tax return, you generally do not have to repay the premium tax credit you received.

This treatment is outlined in IRS guidance for Form 8962 (see instructions for “Estimated household income at least 100% of the federal poverty line”).

Helpful reference: Coordination between Medicaid and Premium Tax Credits (IRS guidance).

Important exception

There is one important exception:

You may not qualify for this protection if the IRS determines that you provided incorrect information knowingly or with reckless disregard for the truth when applying for coverage.

In other words, the IRS requires that income information submitted to the Marketplace be made in good faith and based on your best estimate at the time.

How should I estimate my income?

A good rule of thumb is to:

• Estimate your annual income as accurately as possible using current and prior-year income as a reference
• If your income is variable or uncertain, it is appropriate to use a reasonable projection based on recent history

The Marketplace may request income verification documents if your reported income appears inconsistent with prior tax records.

Can I update my income later?

Yes.

You can update your estimated income at any time during the year if your situation changes. This helps ensure your subsidy remains accurate and reduces the chance of surprises at tax time.