If you underestimated your income for Covered California, you’ll pay back the excess premium assistance when you file your federal tax return, and starting with 2026 coverage there’s no cap on how much you owe. In prior years, lower-income filers were shielded by repayment limits that kept the damage to a few hundred dollars. Those limits are gone. If the marketplace sent $400 a month to your insurer and your actual income only justified $200 a month, you owe the full $2,400 back at tax time.1Internal Revenue Service. Updates to Questions and Answers About the Premium Tax Credit
How the Payback Works at Tax Time
When you enrolled, Covered California used your income estimate to calculate an Advanced Premium Tax Credit and sent that credit straight to your insurer each month to lower your bill.2Office of the Law Revision Counsel. 26 USC 36B Refundable Credit for Coverage Under a Qualified Health Plan The word “advanced” is the catch. The government paid based on a guess about what you’d earn, not what you actually earned.
The reconciliation happens on IRS Form 8962, which you file with your federal return. It compares the total advance credits paid on your behalf against the credit your real income actually qualifies you for.3Internal Revenue Service. Reconciling Your Advance Payments of the Premium Tax Credit If your actual income came in higher than you estimated, the credit you deserved was smaller than what was paid, and the difference is added to your tax bill.4Internal Revenue Service. Premium Tax Credit Claiming the Credit and Reconciling Advance Credit Payments The result is either a smaller refund or a balance due, sometimes a large one.
No Repayment Caps for 2026
This is the change that catches people off guard. Through 2025, federal law capped how much excess credit you had to repay based on your income as a percentage of the federal poverty level, and a single filer under 200 percent of the poverty level never owed back more than a few hundred dollars no matter the size of the overpayment. Those caps no longer exist.
For tax years beginning after December 31, 2025, you must repay the full amount by which your advance credit payments exceed your actual premium tax credit.1Internal Revenue Service. Updates to Questions and Answers About the Premium Tax Credit The only exception is for households whose income falls below 100 percent of the federal poverty level, who still owe nothing back.5CMS: Agent and Brokers FAQ. Are There Limits to How Much Excess Advance Payments of the Premium Tax Credit Consumers Must Pay Back Everyone else owes dollar for dollar.
The 400 Percent Poverty Cliff
The enhanced premium tax credits from the Inflation Reduction Act expired at the end of 2025, which brought back the 400 percent poverty level income ceiling for credit eligibility. During 2021 through 2025, households above that line could still receive credits if their required premium contribution exceeded a set percentage of income. That’s over.
For 2026, if your actual household income reaches or exceeds 400 percent of the federal poverty level, you are not an “applicable taxpayer” and you qualify for zero premium tax credit.2Office of the Law Revision Counsel. 26 USC 36B Refundable Credit for Coverage Under a Qualified Health Plan Every dollar of advance credit paid during the year must come back. For a single person in 2026, 400 percent of the poverty level is $63,840.6HHS ASPE. 2026 Poverty Guidelines 48 Contiguous States Alaska and Hawaii For a family of four, it’s $132,000.
This cliff is where underestimating does the most damage. Someone who projected $55,000 and actually earned $65,000 doesn’t owe a proportional adjustment. They owe back everything, because they crossed the line where eligibility drops to zero. A repayment of $5,000 to $10,000 or more is realistic in that scenario. If your income is anywhere near the 400 percent threshold, build a generous cushion into your estimate.
California’s State Subsidy Adds a Second Reconciliation
Because the federal enhanced credits expired, California reinstated its own state premium subsidy for plan year 2026, targeting households with income at or below 165 percent of the federal poverty level.7Covered California. 2026 California State Premium Subsidy Program For a single person, that threshold is roughly $26,334 in annual income.
If you received the state subsidy based on an income estimate that turned out too low, you may need to reconcile it separately on your California return. The last time California ran this program, the Franchise Tax Board required Form FTB 3849 to compare the state subsidy received against the amount actually qualified for.8Franchise Tax Board. 2021 Subsidy Reconciliation The same type of reconciliation is expected for 2026. An underestimate can trigger repayment obligations on both your federal and your state return.
Report Income Changes Within 30 Days
The most effective way to limit the damage is to update your income the moment you know it has changed. You have 30 days from any income change to report it to Covered California.9Covered California. How to Report a Change Every month that passes with too-high advance credits is another month of overpayment you’ll owe back in full at tax time.
You can report changes by logging into your Covered California account online, calling the service center at (800) 300-1506, or working with a certified enrollment counselor or licensed insurance agent.10Covered California. Updating Your Income Gather recent pay stubs, any 1099s for contract work, and records of other income like investments or Social Security. For self-employment, prepare a current profit and loss summary. The goal is to project your total annual income through December 31, accounting for expected bonuses or seasonal changes in hours.
Once you submit the update, Covered California recalculates your eligibility and adjusts your monthly premium starting the first of the following month. Reporting a raise mid-year means a higher monthly premium now, but a much smaller tax bill later.
What Income You Must Include
Most underestimates happen because people leave out income types they don’t think of as earnings. Covered California uses modified adjusted gross income, which starts with the adjusted gross income from your tax return and adds back a few categories.11HealthCare.gov. Whats Included as Income Covered California’s own instructions tell you to start with line 11 on your most recent Form 1040 and adjust from there.12Covered California. How to Estimate Your Income
The categories people most commonly forget:
- Social Security benefits, including the portion that isn’t normally taxed.
- Tax-exempt interest from municipal bonds and similar investments.
- Foreign earned income you excluded on your federal return.
- Gig and freelance income, including 1099 earnings, side jobs, and online sales. If you’re self-employed, use net profit after business expenses.
Your estimate must also cover every person in your tax household: your income, your spouse’s income, and any dependent’s income if they’re required to file a return. A common mistake is estimating only the primary earner’s wages while ignoring a spouse’s part-time job or a dependent’s summer earnings.
Skipping Form 8962 Costs You Future Credits
Some people who know they’ll owe money try to avoid the problem by not filing Form 8962, or by skipping their tax return altogether. The debt doesn’t disappear, and a second problem opens up: the IRS will block you from receiving advance premium tax credits in future years.13Internal Revenue Service. Questions and Answers on the Premium Tax Credit You’ll be responsible for your full monthly premium with no financial assistance until you go back and file the missing return with Form 8962 attached.
You must file Form 8962 for any year in which advance credits were paid on your behalf, even if you expect to owe.14Internal Revenue Service. Instructions for Form 8962 Premium Tax Credit If your return gets rejected electronically for a missing form, the IRS will send a notice asking you to correct and refile. Ignoring it compounds the problem. Filing and owing is always better than not filing.
Honest Mistakes Are Not Fraud
An honest underestimate is not fraud. Income is genuinely hard to predict, especially for people with variable hours, self-employment income, or multiple earners in the household. The reconciliation on Form 8962 is designed to handle the gap between estimates and reality, and you won’t face penalties for getting it wrong in good faith.
Intentionally providing false income information is a different matter. Knowingly submitting fraudulent information on a marketplace application can trigger civil penalties of up to $250,000 under federal law, and the government can pursue claims under the False Claims Act when federal subsidy dollars are involved. Smaller civil penalties apply even for negligent misrepresentation. The practical line is whether you knew the information was wrong when you submitted it. If your income changes during the year and you’re aware of it, report it within the 30-day window. That’s the clearest way to show good faith and keep the question of intent off the table.