The federal subsidy program is one of the most popular provisions of the Affordable Care Act. It uses premium tax credits to help lower the cost of insurance premiums for low and middle-income individuals and families. Understanding how these tax credits work is the key to getting the best deal out of your insurance dollars.
What are premium tax credits?
Premium tax credits help to lower the cost of health insurance premiums for plans that were purchased through the Health Insurance Marketplace. If you're eligible, you have two options for applying your credit to your insurance. First, you can choose to have your credit paid to your insurer in advance, resulting in a reduced monthly bill. If you choose this option, you'll also have to reconcile the amount of your advanced credit with the true value of your credit on your federal tax return for the year. The second option is to pay your monthly premium bills in full. Then you can claim the full amount of your credit when you file your taxes.
How can you get a premium tax credit?
To receive a premium tax credit, you must first apply for insurance at healthcare.gov. During the regular application process, you'll have the option to apply for financial assistance. The Marketplace will use your income information to determine your eligibility status and estimate the amount of credit that you'll be able to claim for the year.
What are the eligibility requirements for a premium tax credit?
To be eligible, you must apply and purchase your plan from the Marketplace and your household income must fall between 100%-400% of the federal poverty line. Premium tax credits are unavailable to anyone who can already get affordable coverage through an employer, Medicaid, Medicare, CHIP, or TRICARE. Finally, you cannot be claimed as a dependent by another person, or file your federal tax return under a 'Married Filing Separately' status.
What determines the amount of your credit?
The amount of your premium tax credit is determined by the amount of your household income. A low-income individual would need more help to pay for their premiums, so they would receive a larger credit than a middle-income individual.
How to calculate your household income:
Your household income is your Modified Adjusted Gross Income (MAGI) plus the Adjusted Gross Incomes (AGI) of all of your dependents who are required to file taxes. Your MAGI is the Adjusted Gross Income (AGI) on your federal income tax return plus any tax-exempt interest, excluded foreign income, nontaxable Social Security benefits, and Supplemental Security Income that you received or have accrued during the year.
How would a change in income or family size affect your premium tax credit?
When you apply for your premium tax credit, the amount you're offered is based on an estimate that isn't set in stone. Certain life changes such as the birth of a child, a marriage, divorce, or a change in income will affect the final amount of your credit on your federal tax return. If the amount of the Marketplace estimate is higher than the true value of your credit, the difference will either add to your refund or subtract from the amount you owe. If the amount of your Marketplace estimate is lower than your final refund, the difference will subtract from your refund or add to amount you owe. If you want to avoid an unsightly surprise on your taxes, be sure to update the Marketplace if you undergo a significant change of life.
How does employer coverage affect your eligibility?
You won't be eligible for a premium tax credit if you can already get affordable insurance coverage through your employer. You'll also be ineligible for a tax credit if you enroll in your employer's health or retiree coverage, regardless of your plan's affordability.
Will you have to file federal income taxes to get a premium tax credit?
If you received a premium tax credit, you must file federal income taxes along with a PTC Form 8962. This remains true, even if you weren't otherwise required to file and if your premium tax credit is your only reason for filing taxes for the year.
Can married couples file separate federal tax returns and still be eligible?
If you and your spouse file your federal income taxes as 'Married Filing Separately,' you will be ineligible for a premium tax credit. However, there are some exemptions for victims of domestic abuse and spousal abandonment.
What will you need to report your premium tax credit on your federal income taxes?
The Health Insurance Marketplace will send you a 'Health Insurance Marketplace Statement' (Form 1095-A) by early February. Your statement will include everything you need to report your premium tax credit.
Applying for a premium tax credit is a great way to get quality health insurance, even if you're on a tight budget. Applying online is easy and the Marketplace provides you with everything you need to report your credit to Uncle Sam on April 15. Just remember, premium tax credits are only available at the Health Insurance Marketplace during open enrollment. So don't wait, be your family's hero and protect them with quality, affordable health insurance.