Sally’s column Thursday
Buy Your Own Marketplace Coverage? Proposed IRS Rules Confirm No Cap on Paying Back Extra Subsidy for 2026
Treasury and the IRS have proposed regulations to carry out the 2025 tax law's premium tax credit changes. For freelancers and owners with uneven income, the biggest one is already law: starting with 2026, any excess advance credit comes back in full at tax time.
- IRS
- premium tax credit
- health insurance
- marketplace
- self-employed
- Form 8962
- P.L. 119-21
- small business
Your 2025 return and your 2026 return will handle the same mistake differently. If your income came in higher than you told the marketplace, the old rules could cap how much of the extra health insurance subsidy you paid back. For 2026, there’s no cap [1, 3]. On Oct. 15, Treasury and the IRS published proposed regulations that write that change, and several others from the 2025 tax law, into the premium tax credit rules [1]. If you’re self-employed and buy your own coverage, this one’s for you.
Here’s the short version: the proposal mostly catches the regulations up to a law that already took effect, and the part that touches your wallet is the repayment change [1].
What changed
The premium tax credit is the tax credit that helps pay for health insurance bought through a marketplace, which the rules call an Exchange [1]. Most people take it in advance: the government sends payments to the insurer during the year, called advance payments of the premium tax credit, or APTC. At tax time you square up on Form 8962. If the advance payments were more than the credit you actually qualify for, the difference gets added to your tax [1].
Through 2025, people with household income under 400% of the federal poverty level had a limit on how much of that excess they owed [1]. Section 71305 of Public Law 119-21, signed July 4, 2025, struck that limit for tax years beginning after Dec. 31, 2025 [3]. The proposed rules put it plainly: for those years, a taxpayer’s tax liability “is increased by the full amount of the excess APTC” [1].
The proposal also updates a separate rule for people who claim the Section 162(l) deduction, the one self-employed people take for their own health insurance premiums. The regulations had a special way to figure the excess-credit increase for those taxpayers, and the proposal would limit it to tax years beginning before Jan. 1, 2026 [1].
Treasury and the IRS released the package on Oct. 14 [2, 4]. The IRS announcement leaned on the eligibility and verification pieces, describing new checks for advance payments and limits on which noncitizens can claim the credit [2].
The midyear enrollment change
This one is easy to miss. Marketplaces offer special enrollment periods, windows outside open enrollment when you can sign up [1]. Some have been based on income alone: your expected income is low enough, so you can enroll.
The 2025 law says a plan you enroll in during one of those income-based windows, when it isn’t tied to an event or change in circumstances, doesn’t count as a qualified health plan for the credit [3]. That rule covers plan years starting in 2026 and later [3]. The proposal repeats it in the definitions [1]. You could still buy the coverage. You just couldn’t claim the credit for it.
Who’s affected, and how much?
Treasury and the IRS expect the rules to reach about 15.6 million people enrolled in marketplace coverage, including 13.5 million who might claim the credit [1]. They estimate that about 3.7 million returns will include a repayment of excess advance credit in 2028 [1].
Small employers can mostly relax. The agencies say nothing in the proposal affects employer reporting on Forms 1095-B or 1095-C [1]. They also certified that the rules won’t have a significant economic impact on a substantial number of small entities, because “the majority of the effect of the proposed regulations falls on individual taxpayers” [1].
Does this apply to you?
Say you’re a hypothetical freelance photographer who bought a marketplace plan for 2026 and estimated a modest year. Then a few big wedding contracts came through. When you file your 2026 return, Form 8962 compares the advance payments with the credit your actual income supports. Whatever was overpaid gets added to your tax, all of it, with no ceiling [1, 3].
Now say you’re the same hypothetical photographer still wrapping up your 2025 return on extension. The law dropped the repayment limitation starting with 2026 tax years, not before [3]. So if you otherwise qualify, the old limit can still apply to 2025. The proposed rules keep the existing regulation for tax years beginning before Oct. 15, 2026 [1].
Last one. A hypothetical handyman who dropped his plan wants to re-enroll in the middle of 2026, and the only window open to him is based on his low expected income. Under the law, that coverage wouldn’t qualify for the credit [1, 3]. If a qualifying event opened his window instead, this exclusion wouldn’t apply [1].
A few changes come later. Starting with tax years beginning after Dec. 31, 2027, a month counts toward the credit only if the marketplace verified things like your income, family size and residence [1]. Marketplaces must also offer a pre-enrollment check that starts by Aug. 1 of the year before coverage [1]. A family that gains or loses a member, such as through a birth or a divorce, would be covered by a waiver of that verification step [1].
What to do now
None of this asks you to file anything new today [1]. The practical move is about cash. If your 2026 income is running ahead of the estimate you gave the marketplace, every dollar of extra advance credit is a dollar on your 2026 tax bill [1, 3]. Your quarterly estimates are the place to plan for that, and the checklist has the specifics.
If you have thoughts on how the rules treat irregular incomes, the comment period is the time to say so. I wrote about the 2027 affordability percentage for marketplace coverage in July; the repayment change is the other side of the same credit.
What I’m keeping an eye on
The Nov. 30, 2026, comment deadline and the Dec. 8 hearing. Requests to attend are due by 5 p.m. ET on Dec. 4, and the hearing is canceled if nobody sends an outline by Nov. 30 [1].
The Health and Human Services rules. Treasury and the IRS say the marketplace procedures needed for verification will come in parallel proposed rules from that department [1, 2]. If finalized, the IRS rules would also require revised instructions for Form 8962 and Form 1095-A [1].
— Sally