How Will Getting Married Affect Your Premium Tax Credit?

Optional Premium Tax Credit Calculation for the Year You Get Married

More than 12 million Americans receive premium tax credits (premium subsidies) to offset the cost of health insurance purchased in the exchanges. 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. 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.

Two women smiling at each other on their wedding day
 LumiNola / Getty Images

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 owe 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 (the caps are detailed in Table 5 of the Instructions for Form 8962). But if your ACA-specific MAGI does end up going over 400% of the poverty level, you have to repay every penny of the excess subsidy that was paid on your behalf. Depending on a household's income and subsidy amount, having to repay some or all of the subsidy can be a significant financial hit.

(For 2021 and 2022, subsidies are available for many enrollees with income above 400% of the poverty level, due to the American Rescue Plan. But if those enrollees end up with higher income than they projected and thus received excess subsidies, the entire excess subsidy has to be repaid to the IRS.)

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 push them to a much higher percentage of the poverty level than they each had prior to the marriage. Since subsidy amounts are based on how a household's income compares with the poverty level, this can result in a considerable amount of excess subsidy having to be repaid to the IRS.

This is particularly true if the household's total income ends up being above 400% of the poverty level. Even though the American Rescue Plan does allow for subsidies above that level through the end of 2022, there is no cap on excess subsidy repayments for households with income above 400% of the poverty level.

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. (This example is applicable to 2021 and 2022, when the American Rescue Plan's subsidy enhancements are in place. Unless those rules are extended under additional legislation, subsidies will be smaller and less widely available again as of 2023. But the specifics of the IRS's alternative calculation for the year of marriage would not change, as the American Rescue Plan didn't change those rules.)

Ahmad and Alicia, who are both 35 and live in Wyoming, are getting married in September 2022. Neither of them has dependents. Prior to their wedding, Ahmad has a plan through the health insurance exchange. His income is $46,000, and his premium subsidy in 2022 is $453 per month (based on only his own income, and a household size of one).

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 $4,077 in premium tax credits (directly to his health insurer) to offset the cost of his premiums ($453 per month in tax credits, for nine months).

In the spring of 2023, Ahmad and Alicia will file their joint tax return for 2022, which will show a total household income of $98,000 (Ahmad's $46,000 plus Alicia's $52,000). Prior to 2021, that would have made Ahmad ineligible for any subsidy, as $98,000 is well above 400% of the poverty level for a household of two (so the entire subsidy amount would have to have been repaid). Under the American Rescue Plan's subsidy enhancements, Ahmad is still eligible for a small subsidy — $44 per month — even with a combined household income of $98,000.

But that's still dramatically lower than the $453/month subsidy he was receiving as a single person for the first nine months of the year. This is because their combined household income is 562% of the poverty level for a household of two. Ahmad's single income was only 357% of the poverty level for a household of one, and subsidy amounts are always based on how a household's income compares with the poverty level for their specific household size.

And since their combined household income exceeds 400% of the poverty level, there's no cap on how much would have to be repaid. So without the alternative calculation (which we'll discuss in just a moment), Ahmad would have to repay $3,681 ($409 in excess subsidy per month, for each of the nine months he had coverage).

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 for the entire year, with an income equal to 562% of the poverty level, as opposed to Ahmad's single income that was equal to 357% of the poverty level for a household of one. This is why the standard calculation would reduce Ahmad's subsidy amount to just $44/month, instead of $453/month.

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 $411 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 $378, which is the difference between the $453 per month that was paid on his behalf and the $411 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 reduces the person's income relative to the poverty level (based on their household size prior to 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 substantially higher—say $152,000 instead of $52,000—the alternative calculation wouldn't provide much help. Their combined income would be $198,000 in that case, and half of that would be $99,000.

Even with the American Rescue Plan in place, that would result in a subsidy amount of only $37/month for Ahmad if he uses the alternative calculation for the year of marriage (if and when the American Rescue Plan's subsidy enhancements end, that income would be far too high for any subsidies at all). So Ahmad would still have to repay most of his subsidy amount, because even half of their combined income would still only make him eligible for a very small subsidy.

A couple of important points to keep in mind here: The poverty level increases each year, so a household's income relative to the poverty level will change each year, even if their income doesn't change. 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 too large for subsidies (or only eligible for a very small subsidy), the alternative calculation won't help or won't help significantly. This is true even if the marketplace enrollee had quite a low income and was eligible for substantial subsidies in the months before the marriage.

Summary

Premium subsidy amounts are based on a household's income relative to the poverty level. Subsidies are only available for married couples if they file joint tax returns. A couple's combined income might be dramatically different from their single incomes, and subsidy amounts always have to be reconciled on tax returns after the year is over.

Fortunately, the IRS has an alternative calculation that a couple can use for the year they get married. This allows them to use half of the household income and their pre-marriage household size to determine subsidy amounts for the portion of the year prior to the marriage. Using this approach will sometimes help to avoid having to repay a substantial amount of money to the IRS.

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.

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2 Sources
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  1. US Department of Health and Human Services. Centers for Medicare and Medicaid Services, Newsroom. All-Time High: 13.6 Million People Signed Up for Health Coverage on the ACA Insurance Marketplaces With a Month of Open Enrollment Left to Go.

  2. Internal Revenue Service. The premium tax credit—the basics.