MP MediPrimer

For Members & Caregivers

Estimating Income for Marketplace Subsidies (and What Happens If You're Wrong)

Your premium tax credit is based on a guess about next year's income. Here's how to make a good guess, what counts, and what tax time looks like if the guess was off.

Here's the short answer. Marketplace savings are based on your expected household income for the year you want coverage, not last year's income. Make your best estimate, then update it whenever your income or household changes. At tax time you "reconcile": you compare the credit you used during the year with the credit you actually qualified for based on your final income. If you estimated too low and used too much credit, you pay the difference back with your taxes. If you estimated too high, you get the difference back as a credit or refund. The stakes went up in 2026. For tax years after 2025 there is no repayment cap: you must repay the full amount by which your advance credit exceeded the credit you were entitled to.

If you're worried about paying money back, you can choose to use only part of your credit each month, or none of it, and claim the rest at tax time. HealthCare.gov lets you set this under "Decide how much to lower your monthly premium" when you update your application.

What counts as income

The Marketplace uses a number called modified adjusted gross income (MAGI). For most people it's the same as, or very close to, the adjusted gross income (AGI) on their tax return. MAGI is your AGI plus any untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest. Supplemental Security Income (SSI) is not added.

Count these Don't count these
Wages (federal taxable wages from your pay stub), tips, self-employment income after expenses Supplemental Security Income (SSI)
Social Security benefits, both taxable and non-taxable, including SSDI Child support, and the Child Tax Credit payments you get from the IRS
Unemployment compensation Veterans' disability payments and workers' compensation
Retirement and pension income, including most IRA and 401(k) withdrawals Qualified withdrawals from a Roth account
Interest, dividends (including tax-exempt interest), capital gains, net rental income Gifts, and money from loans
Alimony from divorces finalized before January 1, 2019 Alimony from divorces finalized on or after January 1, 2019

The table follows HealthCare.gov's list of what to include.

Whose income counts. Your household is the tax filer, their spouse, and their tax dependents, including people who don't need coverage. The Marketplace counts everyone's expected income, even people covered by a job plan, Medicare, or Medicaid. A dependent's income from a summer job counts only if they're required to file a tax return.

How to make the estimate, step by step

  1. Start with last year's AGI. It's on IRS Form 1040, line 11.
  2. Add the MAGI items. Tax-exempt foreign income, tax-exempt Social Security (including tier 1 railroad retirement), and tax-exempt interest. Don't add SSI.
  3. Adjust for what you expect to change. Raises, a new job or fewer hours, changes in self-employment or investment income, and gaining or losing a dependent. Household changes can have a big effect on your savings.
  4. No recent tax return? Take the federal taxable wages from each earner's pay stub (or gross pay minus what the employer takes out for health coverage, child care, and retirement), multiply by the number of paychecks in the year, and add other income.
  5. Irregular income? If you're self-employed, on commission, seasonal, or unemployed, base the estimate on past experience, recent trends, and what you know about changes at work. For a new line of work, ask people in the same field. HealthCare.gov has an income calculator.

The Marketplace may ask you to upload pay stubs or other documents to verify your income. Respond on time. Under 2025 federal rules, you have a 90-day window to resolve an income mismatch, and the automatic 60-day extension that used to follow was removed. Our Marketplace guide explains how the application and savings work overall.

What happens at tax time

If you used the premium tax credit in advance during the year, you must file a federal tax return and reconcile it, even if you don't usually file. Here's the sequence:

  1. Get Form 1095-A. The Marketplace sends it by mid-February, and it's usually in your online account earlier. It shows your premiums, the benchmark Silver plan premium, and the advance credit paid to your insurer each month.
  2. Fill out IRS Form 8962. You move the numbers from the 1095-A onto Form 8962 to figure the credit you actually qualified for based on your final income.
  3. Compare. Line 26 shows whether you used more or less credit than you qualified for.
  4. Attach Form 8962 to your return. A return filed without it can be rejected.

If you estimated too low (income came in higher), you used more credit than you were entitled to. The excess is subtracted from your refund or added to what you owe. If you estimated too high (income came in lower), you get the unused credit as a refund or a lower tax bill.

The repayment cap is gone

For tax years before 2026, a repayment cap limited how much excess credit you had to pay back if your household income was under 400% of the federal poverty level. That cap no longer exists. For tax years after 2025, you must repay the full amount by which your advance credit payments exceeded your premium tax credit. Because the temporary extra credits from the pandemic also ended after 2025, an income surprise can now cost real money. See why Marketplace premiums went up for that part of the story.

If you don't file and reconcile

Skipping the reconciliation has its own penalty. Under a 2025 federal rule, the Marketplace must find you ineligible for advance premium tax credits if you (or your tax filer) got advance credits for a prior year and didn't file a return and reconcile them for that year. If you missed it, you may get a letter from the Marketplace or an IRS "Letter 12C" asking for the form.

Four ways to lower the risk of a big repayment

Common questions

Which year's income do I use?

The year you want coverage. Savings are based on your expected income for that year, not on last year's return. Last year's AGI is just the starting point for the estimate.

I underestimated my income. How much will I owe?

The difference between the advance credit paid to your insurer and the credit you qualify for on your final income. For tax years after 2025 there's no cap, so the full excess is subtracted from your refund or added to your balance due. Form 8962 does the math. Many people who owe simply see a smaller refund.

I overestimated. Do I get money back?

Yes. If you used less credit than you qualified for, you claim the difference on Form 8962. It lowers your tax or increases your refund.

Do I count my spouse's income if they have their own insurance?

Yes. The Marketplace counts income for everyone in your tax household, including a spouse or dependent who has coverage through a job, Medicare, or Medicaid. You'll say on the application which people need coverage.

Does Social Security count as income?

Yes, the full amount before deductions, whether or not it's taxable, including SSDI. SSI does not count.

What if my income turns out to be too low for a Marketplace credit?

If your income drops, report it. You may qualify for a bigger credit, or for Medicaid or CHIP instead. The Marketplace may also ask for documents when its data shows income below the poverty level, so keep records of what you earn. See Medicaid eligibility.

Official sources

Verify before you act. MediPrimer is general educational information and is not affiliated with any agency or insurer. Nothing here is tax advice. Your credit depends on your income, household, and county, and Congress can change the rules. Check HealthCare.gov or your state marketplace, and talk with a tax professional or a free Navigator about your own numbers.