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

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

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

You can qualify for a premium tax credit even if you owe a debt to the government, say experts. Further, 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.

In an email, a Treasury Department official confirmed that reading of the law was correct. “If the additional tax credit is owed as refund, it would be subject to offset like any other income tax refund,” the official said.

As for your question about whether you might have to repay any premium tax credit, Treasury said the government would not take your tax refund to recover any advance payments of the tax credit that are sent directly to the insurer. “Advance payments of the premium tax credit may be offset for the insurer’s debts, but not for the debts of the covered individual,” Treasury said.

This story was updated at 9:30 a.m. to add the Treasury Department comments.