Q. My wife and I each make about $40,000/year. If we file our taxes separately, can we each qualify for an exchange subsidy?
A. No. The guidelines for eligibility are determined by total household income and the number of people in the household. And for enrollees who are married, subsidies are only available if they file a joint tax return with their spouse (with very limited exceptions, described below, and an optional alternative calculation for the year of marriage, also described below).
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Subsidy eligibility is based on a household’s income (there’s an ACA-specific calculation for that) relative to the federal poverty level.
The poverty level for a household of two is much less than twice the poverty level for a single-person household, as it’s less expensive for two people to maintain one household than to maintain two separate households. But taxpayers whose filing status is married filing separately are explicitly ineligible to receive subsidies in the exchange, regardless of their income. (See this IRS publication for more details).
Premium subsidies have to be reconciled on your tax return, using Form 8962. If you receive a premium subsidy during the year and then end up using the married filing separately status, the full amount of the subsidy that was paid on your behalf would have to be repaid to the IRS with your tax return.
In March 2014, the IRS issued a special rule with regard to married people who are unable to file a joint return because of domestic abuse. If a taxpayer files as married filing separately, premium tax credits are still available as long as (1.) the spouses are not living together, (2.) the taxpayer is unable to file a joint return because of domestic violence, and (3.) the taxpayer indicates this information on his or her tax return.
The instructions for Form 8962 (used to reconcile the premium tax credit) also note that an exception can be made for certain married couples who file separately because they live apart from each other or due to spousal abandonment. But the rules also clarify that the exception for spousal abandonment or domestic violence cannot be used for more than three consecutive years.
For everyone else, the rules are clear that married couples must file a joint tax return in order to qualify for subsidies in the exchanges. But thanks to the American Rescue Plan and Inflation Reduction Act, subsidies are larger and more widely available from 2021 through 2025 (that could be extended at a later date).
How are premium tax credits calculated for the year you get married?
In addition to the normal rules for reconciling premium tax credits, the IRS also has an alternative calculation for the year in which you get married, which is described in IRS Publication 974. The alternative calculation allows you to reconcile subsidies differently for the months prior to the marriage. For those months, you can use half of the total married household income, and a household size that does not include the spouse (or the spouse’s dependents, if applicable).
This calculation is optional, so you can choose to use the normal subsidy reconciliation rules, which would mean using — for the entire year — your total combined household income and a household size that includes both spouses (and any dependents, if applicable).
So for example, say Bob and Casey get married in September, and we’ll assume neither of them had any dependents. Bob had Marketplace coverage prior to the marriage, but switched to Casey’s employer-sponsored plan in October. Bob’s income is $40,000 per year, and Casey’s is $70,000. When Bob reconciles his Marketplace subsidy for January – September, he can either use a household size of two and a household income of $110,000, or a household size of one and an income of $55,000 (half of their combined total household income).
As is always the case with any tax-related scenario, you should contact a tax advisor to determine the best approach for your specific circumstances.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.
