Lying on Your Health Insurance Subsidy Application

It won't help in the long run

Woman crossing fingers in front of doctor
You'll get caught by the IRS if you lie on your application for a health insurance subsidy. PhotoAlto/Eric Audras/Getty Images

Are you thinking about lying on your health insurance subsidy application so you’ll get a bigger subsidy (aka, premium tax credit) or so you’ll qualify for a subsidy when you’re not eligible? Here’s why you shouldn’t.

  • You’ll get caught.
  • You’ll have to pay the subsidy back.
  • You may be guilty of fraud, a punishable crime.

How You’ll Get Caught for Lying About Your Income.

When you apply for a health insurance subsidy, your subsidy amount is based on an estimate of your income for the upcoming year (or for the current year, if you're applying during a special enrollment period). The money the government sends to your health insurance company each month is actually an advanced payment of the tax credit you'd be eligible for when you file your tax return for that year. It's an income-based subsidy, but since it's paid in advance, it has to be based on an estimate of what your income will be for the year. The actual subsidy (tax credit) calculation doesn’t happen until you file your taxes in the early part of the following year.

When you file your taxes, the IRS will be able to see exactly how much money you really earned. It will be on your W2 and 1099 forms. The IRS will know how much you earned from your job and how much you earned from interest and dividends and other sources.

Next, you undergo a process called reconciliation. There, you’ll compare the amount of health insurance subsidy your health plan received on your behalf with the correct subsidy amount based on your actual income. If you received more in subsidies throughout the year than you were eligible for based on your actual income, you may have to pay back some or all of the extra money you got.

If your income ends up over 400 percent of the federal poverty level and you're thus not eligible for subsidies at all, you'll have to pay back 100 percent of the subsidy that was provided throughout the year on your behalf; if your income ends up under 400 percent of the poverty level, the​ IRS caps the amount of excess subsidy that you'll have to pay back, depending on your income (see Table 5 on page 16 of the IRS instructions for Form 8962). If your income doesn't exceed 400 percent of the poverty level, the most you'd have to repay is $1,300 if you're a single filer, and $2,600 if your filing status is other than single (these amounts are for 2018; they're indexed, so they can change annually). But that's still a significant amount of money to have to repay, especially if you're not expecting it. Lawmakers have considered eliminating these caps, but that has not yet happened. 

And if a subsidy is being paid on your behalf each month and you then fail to file Form 8962 (the premium tax credit reconciliation form) with your tax return, your subsidies will be cut off going forward until you get the subsidy-reconciliation process completed. There's no getting around the fact that everything has to eventually be squared up with the IRS.

How You’ll Get Caught for Lying About an Offer of Job-Based Health Insurance.

You’re not eligible for a health insurance subsidy if your job offers health insurance that’s affordable and provides minimum value. It’s your employer’s offer of insurance that makes you ineligible, not actually having the insurance coverage. So, although you can decline your employer’s coverage because you’d rather buy your own plan on your state’s health insurance exchange, you're not eligible for a premium tax credit (subsidy) if your employer offered you affordable, minimum value coverage.

What if you lie and say you weren’t offered affordable health insurance by your employer? You might be able to trick the exchange into giving your health plan the advance payment of a subsidy. But the IRS will catch you, you’ll have to pay it back, and you'll have committed fraud.

Just like they send out W2s or 1099s each year, large employers now fill out a new tax form: Form 1095-C. This form tells both you and the IRS whether or not you were offered health insurance, whether that health insurance provides minimum value, and how much that health insurance would have cost you. With this information, the IRS will know whether your employer’s offer of coverage was affordable and provided minimum value (note that affordability is based on just the cost of the employee's premium, regardless of whether family members are added to the plan; for 2019, coverage is considered affordable if the employee's cost of the premium is less than 9.86 percent of household income).

If you’ve been fraudulently receiving an advanced payment health insurance subsidy all year long, Form 1095-C will make it obvious that you weren’t eligible for that subsidy. You’ll have to pay it back, and you could be guilty of fraud.

Just tell the truth.

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