Lying on Your Health Insurance Subsidy Application

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, and calculated based on a version of modified adjusted gross income that's specific to the Affordable Care Act (note that this is not the same as regular modified adjusted gross income that you might be familiar with for other purposes). 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% of the federal poverty level and you're thus not eligible for subsidies at all, you'll have to pay back 100% of the subsidy that was provided throughout the year on your behalf (note that this is true even if all of your income comes in a lump sum near the end of the year, or you get a better job later in the year, etc.). If your income ends up under 400% 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% of the poverty level, the most you'd have to repay is $1,325 if you're a single filer, and $2,650 if your filing status is other than single (these amounts are for 2019 tax returns; they're indexed, so they can change annually).

Lawmakers have considered eliminating these caps—meaning that people would have to pay back the full amount of excess subsidy they had received, regardless of their income—but for the time being, they remain in place. Even with the current caps, however, the amount a tax filer can end up having to repay can be a significant financial burden, especially if you're not expecting it.

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 tax form related to the health insurance they offer their employees: 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 (it's generally in the employer's best interest to make sure that the plan does provide minimum value and meets the affordability guidelines; otherwise, they'll be subject to a penalty under the employer mandate, albeit a potentially smaller penalty than they would have owed had they not offered coverage at all). 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; as of 2020, coverage is considered affordable if the employee's cost of the premium is less than 9.78% 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.