A better-than-expected business year can bring an unwelcome surprise if your health insurance premiums are being reduced by the premium tax credit. The income estimate you supplied when enrolling may no longer match what your household will earn.
For 2026 coverage, reconciled on the federal return you generally file in 2027, there is no cap on repayment of excess advance premium tax credits. If the assistance paid to your insurer exceeds the credit you actually qualify for, the full difference increases your tax liability. It can reduce your refund or increase your balance due. IRS premium tax credit guidance
October is a good time to revisit that estimate, especially if you are self-employed, have variable income, or experienced a household change this year.
What changed, and what did not
Advance payments of the premium tax credit, or APTC, lower the premiums you pay during the year. At filing time, Form 8962 compares those advances with the credit you are actually allowed.
That reconciliation is not new. The change is the removal of repayment limits that previously protected some households from repaying the entire excess.
For 2025, repayment caps depended on income and filing status. They generally applied below 400% of the federal poverty line; there was no repayment cap at or above that level. Expanded credit eligibility in 2021 through 2025 did not mean everyone above that threshold was excused from repaying excess advances. IRS 2025 Form 8962 instructions, Table 5
Repaying excess assistance is also different from a penalty. It is a reconciliation of the credit. A separate underpayment penalty may apply depending on your tax payments and circumstances.
A simple example of the difference
Suppose a household receives $4,000 in advance credits for 2026. Its final allowable credit is $1,500.
The excess is $2,500, calculated as $4,000 minus $1,500. The full $2,500 is added to the household’s tax liability through reconciliation. It is the excess that must be repaid, not automatically the entire $4,000 received.
This is an illustration, not an estimate of anyone’s eligibility. A real calculation depends on the household’s income, coverage, family circumstances, and other applicable rules.
For business owners, start with an updated profit estimate
Do not rely only on last year’s return or the amount you transfer from your business account to your personal account. For a sole proprietor, the Marketplace asks for estimated net self-employment income, meaning income after business expenses, for the coverage year. Your household may have other income that also counts. HealthCare.gov self-employment guidance
Review year-to-date results and a realistic forecast for the remaining months. Consider your spouse’s earnings and other relevant household income as well. An up-to-date set of books gives you a better starting point than a guess based on bank deposits.
If your business structure or income sources make the estimate complicated, ask for help before changing the application.
Update the Marketplace, then review your tax payments
Report changes through the Marketplace where you enrolled. Income changes, marriage or divorce, changes in dependents, and eligibility for other health coverage can affect financial assistance. Updating the application can adjust future advance payments; it does not automatically erase excess assistance already received. HealthCare.gov reporting guidance
You can choose to use all, some, or none of the estimated credit in advance. Taking less assistance means paying more of the monthly premium yourself, so weigh that against your budget rather than assuming it is always the best choice.
Separately, have your withholding and estimated payments reviewed if you expect a reconciliation balance. Payment timing matters, and a late estimated payment does not necessarily eliminate an earlier underpayment penalty. Uneven income may warrant a closer look at the annualized income method. IRS underpayment guidance
Check the paperwork before filing
When your Form 1095-A arrives, check the coverage and payment information. Contact the Marketplace for corrections if necessary, and use the accurate form to complete Form 8962. HealthCare.gov Form 1095-A guidance
If you cannot pay the resulting balance in full, review IRS payment options. A payment plan can spread payments over time, but it does not cancel a correctly calculated repayment; applicable interest and penalties can continue. Correcting inaccurate information is a separate issue from asking for time to pay. IRS payment plans
Contact Key2 Accounting to review your income estimate and potential tax exposure before year-end. We help business owners and families across Colorado and Hawaii connect health coverage decisions with their broader tax plan.