health care creditKeeping up with your taxes is a year-round proposition. This is especially true when you encounter situations that result in a change to your income over the course of a year. This year, the big surprise for some workers is related to the fact that, if your income has increased since you applied for subsidized health insurance under the PPACA, you might actually owe money back.

It’s important to understand that the tax credit you are eligible for when it comes to health care costs is based on your income. If your income goes up, your eligibility goes down. This means that you might be paying less than you should, if you have enjoyed an increase in income.

For example, if I had qualified for a tax credit to help me purchase insurance on an exchange (I don’t), the fact that my husband started a new job this month — one with higher pay — would likely change our household’s eligibility.

Many consumers don’t think about the wider implications of greater income, though. If you received a big commission for a good quarter, or if you got a raise, you probably didn’t think about how your health care credit would be impacted. However, if your income bumped your up just enough, you shouldn’t be receiving as big a tax credit.

This means that, when tax time comes around, you will owe money back, due to the fact that you are basically receiving too large a subsidy for your new income. Depending on your situation, this could result in your tax refund being substantially lower than you expected (or disappearing altogether). If you had plans for that tax refund money, this could throw you off.

What To Do If Your Income Has Increased

Whenever you see positive changes in your income, it’s important to consider the tax implications. This means that you need to reconsider your tax withholding, as well as other aspects of your finances. When it comes to your health insurance plan subsidized through tax credits, it means going online and making adjustments.

You can do this by contacting your state health exchange, or by getting on HealthCare.gov to update your information. Once you do this, your insurance premiums will be adjusted. This means that you will probably have higher costs now, but it will save you hassle and headache later on, at tax time. It makes sense to look ahead to these possibilities now, and make the adjustments.

Of course, another approach is to pay the full premium throughout the year, without receiving the tax credit as you go. Then, when April rolls around, you can figure the tax credit all at once as you figure your taxes. That way, you don’t have to worry about adjusting your premium each time you have a change in income. Instead, you can plan for a set amount each month, and then take advantage of the tax credit when you file your tax return. It means a tighter cash flow each month, but at least it’s a little more predictable on a month-to-month basis — and you have the possibility of a windfall in April.