Ask the Tax Editor, July 17: Higher Health Insurance Premiums
In this week's Ask the Editor Q&A, Joy Taylor answers four questions on the Obamacare premium tax credit.
Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four tax questions from readers on the Obamacare premium tax credit. (Get a free issue of The Kiplinger Tax Letter or subscribe.)
1. Changes to the premium tax credit
Question: For the past few years, I purchased my health insurance online through the government marketplace. The generous subsidies I qualified for reduced my monthly premiums. When I bought my 2026 health insurance plan, I saw my monthly premiums were much higher than in prior years and my subsidies were lower. I can't afford this cost, and I ended up dropping the coverage. Why are the premiums so much higher?
Joy Taylor: I am guessing that in prior years you qualified for the premium tax credit (PTC), the Obamacare subsidy available to eligible individuals who buy health insurance through the marketplace. Temporary enhancements to this the PTC ended after 2025, so fewer individuals now qualify for it, and the credit is lower.
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Before 2021, the PTC was available to people with modified adjusted gross income (AGI) ranging from 100% to 400% of the poverty level. For 2021-25, some people with higher modified AGIs also qualified, and the credit was higher for many. Congress chose not to act on extending the enhancements, so the rules reverted to those that were in pace for pre-2021 years, beginning with 2026 plans purchased through the marketplace.
This is impacting people, such as yourself, who enrolled in coverage late last year for 2026. It's causing their monthly health insurance premiums to rise dramatically, compared with 2025. Most people who qualify for the PTC generally have the credit paid in advance to the health insurance company to lower their monthly premium payment. They elect this when they go to the marketplace to buy insurance. Many people who enrolled in 2026 coverage are experiencing sticker shock and can't pay, or don't want to pay, the higher premiums.
This has led so far to about 3 million people who have bought health insurance through an Affordable Care Act marketplace, such as healthcare.gov, during open enrollment last year to drop their coverage. Insurers and health policy experts warned that millions would end up uninsured if the temporary PTC easings weren't renewed, and the numbers are proving them right.
2. Forecasting what Congress will do
Question: I bought health insurance through a government marketplace for 2026, and my monthly premiums are much higher than last year because I qualify for a lower PTC. Will Congress act before year-end to make this better for me?
Joy Taylor: It's hard to say what Congress will do. Many Democrats want the 2021-25 expansions to the PTC made permanent. That's one of the reasons last fall's federal government shutdown lasted as long as it did (43 days). But last year's deal to reopen the government did not renew the expiring PTC easings. It only included a promise that the Senate would vote on the PTC by the end of 2025. That did not happen.
Federal lawmakers are now dragging their feet on this issue. Democrats want the pre-2026 easings cleanly extended. Republicans want to narrow the scope of the PTC. The parties appeared close to an agreement earlier this year, but talks have stalled.
Expect rising health care premiums to play a role in November's midterm elections. If Democrats win big, look for expanding Obamacare subsidies to be a legislative priority for them in Congress.
3. Paying back excess PTC
Question: For the first time, I bought health insurance through a government marketplace for 2026, and based on my estimated 2026 income, I qualified for the PTC that reduces my monthly health care premiums. What happens if my actual income for 2026 is higher than my estimated income? Will I have to repay the subsidy?
Joy Taylor: Individuals who opt to have their PTC paid in advance to health insurance companies must file Form 1040 and attach Form 8962 to reconcile the advance payments and the actual PTC they are entitled to. If the PTC is higher, they can claim the credit due on their Form 1040. If the PTC is less than the advances, starting with 2026 returns filed next year, they must repay the full amount of he excess, regardless of their reported income. This is different from pre-2026 years, in which taxpayers with incomes below 400% of the poverty level had to repay only a portion of their erroneous credit amounts.
If you experience a lifestyle or income change that could affect the PTC, I suggest notifying the marketplace of such a change. This could include changes in family size, household income and other circumstances, such as starting a job with an employer that provides health coverage to employees. For example, if you lost a job, the exchange will hike the subsidy for future months. It will lower the subsidy amount if you let it know you expect higher income in 2026.
4. The PTC is an IRS audit red flag
Question: I bought health insurance through the marketplace for 2026 and elected to have the premium tax credit reduce my monthly health insurance premiums. My 2026 income will be below the income threshold for filing a tax return. Do I still have to file a 2026 tax return next year?
Joy Taylor: Yes, if you opt to have the PTC paid in advance to your health insurance company to lower your monthly insurance premiums, you must file Form 1040 even though your income is below the normal filing threshold or you expect a refund. And you must complete Form 8962 and attach it to your return.
Note that erroneous PTC reporting is an audit red flag and is easy for the IRS to catch. Its computers flag filed tax returns showing modified AGIs that exceed the limit to take the PTC. So double-check that you qualify for it and that you accurately report it on your 2026 Form 1040.
About Ask the Editor, Tax Edition
Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.
We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!
Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.
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