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I have a state subsidized health plan through Covered CA (California, US). My income fluctuates quite a bit from year to year, but I always do my best to guess what it will average out to be, and if I'm a bit off I've never really paid attention to what it did to my taxes. But this year is different because I have unrealized capital gains right now that are several times larger than my actual income, and depending on if I end up selling my assets by year's end, I could have a VERY different income than if I don't sell them this year. I figure they'll just charge me taxes to recover all the subsidy back, but I'm worried that there will also be penalties for having the wrong income on record.

Do capital gains impact my health insurance subsidy? I'm assuming they do, so at the end of the year if my income is way outside of the bracket I placed myself in, what could be the repercussions? I'm considering downgrading my health plan to make it so any subsidies I have to pay back are minimized, but if anyone has any details of exactly what will happen it would help me make my decision.

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"Do capital gains impact my health insurance subsidy?"

Definitely.

"what could be the repercussions?"

Maybe. I don't think so.

https://www.healthinsurance.org/faqs/what-happens-if-my-income-changes-and-my-premium-subsidy-is-too-big-will-i-have-to-repay-it/ mentions only having to pay back the subsidies; nothing about penalties for wrongly estimating income.

The issue of reconciling APTCs was explained in a 2013 IRS publication (see the final column on page 30383, continued on page 30384) which clearly explains that they do expect people to pay back subsidies that are in excess of the actual amount for which the household qualifies.

But then it mentions "waiver of interest and penalties". However, that looks to only be relevant to people who can't immediately pay it back.

The IRS noted that they would “consider possible avenues of administrative relief” for tax filers who are struggling to pay back excess APTC, including such options as payment plans and the waiver of interest and penalties for people who must return subsidy over-payments. If you find yourself in a situation where you must pay back a significant amount of the premium subsidies you received during the prior year, contact the IRS to see if you can work out a favorable payment plan/interest arrangement.

Bottom Line: if you do realize those CG, squirrel away enough to repay the subsidies.

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  • Your A appears to be only for the Federal PTC/APTC, whereas the Q appears to be about a related but distinct CA state program. Jan 31 at 4:39
  • @dave_thompson_085 Covered CA seems to be California's implementation of an ACA health insurance marketplace, not CA's own insurance plan. Maybe you're thinking of Medi-Cal?
    – RonJohn
    Jan 31 at 6:20
  • The subsidies are federal, Covered CA, like any other state exchange is just administering the subsidy, but nothing in this question is actually unique to CA. If you earn too much to qualify for the level of subsidy you were given, it will be calculated on your tax return and you will need to pay it back to the IRS, as laid out in this answer.
    – quid
    Jan 31 at 7:13
  • CoveredCA is their marketplace, yes, but IN ADDITION to the Federal APTC they have their own subsidy program. Compare the different limits in the page I linked under the question. MediCal is Medicaid which is a fully funded program not a subsidy, and split between Fed and state, although (per PPACA) it can be accessed through the marketplace. Feb 1 at 3:14
  • @dave_thompson_085 write your own answer. That's what Your Answer is for.
    – RonJohn
    Feb 1 at 3:20

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