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Covered California and Obamacare related questions from consumers, employers and agents are answered by Phil Daigle with the best information available at the time. Archived entries may no longer be accurate as the Covered California and Obamacare knowledge-base is evolving quickly. TO REQUEST A PERSONAL RESPONSE INCLUDE EMAIL ADDRESS.


Interest & Penalty on Overpaid Subsidy?

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Question: Not knowing what my income is from year to year, I could estimate my income to be lower than the actual amount. If it turns out the IRS says I owe them money because they paid me too much subsidy, will I also be charged interest, penalty, or fine?

Answer: No. There is no penalty or interest, because the IRS will recover the subsidy overpayment as part of your federal tax payment for that tax year. it would not be overdue.

3 Comments

Bob — that’s the penalty for not having insurance.

The premium support payments are an advance tax credit. In order to get them, you have to make a promise: that you will file a tax return for the year that you took the credit. I assume that if you fail to file a return, you owe the whole amount — because you have been given a credit you aren’t entitled to. If you do file a return, then its a matter of reconciling the amount of credit (if any) that you are entitled to with the amount that you have taken.

(I have a feeling that there are going to be a lot of angry people in the spring of 2015 - it’s a lot easier to sign up to receive money than to face the consequences of having to pay it back.)

I’d just add that there is no penalty or interest as long as that amount is paid when due (on or before April 15, 2015).

I’m in the same situation — I think it’s important to do a little math. If you are near the 400% FPL line, and have money in savings, it’s useful to keep that money in reserve. For example, if you are taking $5000 in advance tax subsidies, you could put that money in a short-term CD that will mature by the time your taxes are due. If it turns out that you owe IRS, then you’ve got the money handy and have even earned a little bit of interest. If not, you can simply roll that money over for the next year.

The risk of not saving the money is that you could be presented with a tax bill that you can’t pay— and then you could incur penalties and interest for late payment.

I have heard that the IRS cannot collect the money unless a tax refund is due. Or does this apply just to penalty for not having insurance.

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