A Reader Asks: Will A Tax Lien Affect My Premium Tax Credit?

January 13, 2014

Q. If I owe state and/or federal taxes and have a lien against me, and I apply for and receive a premium tax credit for health insurance on a state marketplace, will this have to be paid back at some future point?

A. There's no clear guidance on this issue in the regulations, say tax experts.

There's nothing in the rules to suggest that you would have to repay the premium tax credit in addition to the money you already owe, says John W. Roth, a senior federal tax analyst at CCH, a tax and accounting information publisher.

But your tax lien could come into play in other ways.

People with incomes between 100 and 400 percent of the federal poverty level (currently $11,490 to $45,960 for an individual) may be eligible for premium tax credits to buy health insurance on their state marketplace. To determine the amount of the credit, people are asked to estimate their income for the coming year. They can either take the credit in advance and pay a lower monthly premium, or claim it at the end of the year when they file their taxes.

At tax time, the Internal Revenue Service will reconcile the amount of tax credit you received based on your estimated income with the tax credit amount you were actually due based on your income. If your income was lower than you estimated, you could qualify for a larger tax credit, which you could receive as a tax refund when you file your taxes.

However, when people owe the government money--whether it’s back taxes, unpaid student loans or child support—the government often seizes their income tax refund to collect what it's owed.

“As a tax refund it would be subject, in my professional opinion, to seizure,” says Roth.

Treasury Department officials did not respond to a request for comment.

Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communications organization not affiliated with Kaiser Permanente.

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