Facts About Health Insurance Premium Tax Credit

Health Insurance Premium

People currently enrolled in an Obamacare health plan may be eligible for health insurance tax credits. The tax credits lower the cost of health plans by either paying a portion of the premium or by providing a refund on their tax return. Tax credits are available to people if they qualify based on their household income and family size. The credits number which people receive might change due to significant life events, so people are recommended to update their insurer about any such change.

Also known as the premium tax credit, the tax credit implemented under the Affordable Care Act is designed to help low or mid-income eligible families or individuals pay for health insurance. Premium tax credits are available only to individuals who are enrolled in a plan through the federal insurance marketplace, or a state health insurance marketplace, excluding Catastrophic tier coverage. Tax credits offered to individuals are the same in each state like people will receive the same tax credits irrespective of whether they are living in New York or Florida.

Qualifying for a Tax Credit

When people apply for health insurance, then either the federal exchange or their state marketplace calculate their eligibility and estimate the number of tax credits, which they would receive. People are eligible for tax credits if their household family income falls between 133% and 400% of the federal poverty level. People whose income is less than 133% of FPL, then they will be eligible to enroll in their state’s Medicaid program, which is a type of low-cost health insurance. However, most of the states have now expanded their Medicaid eligibility to 138% of the FPL that may also change the lower threshold for health care tax credits in those states. The amount which people receive as tax credit mainly depends on factors like people’s income and their family size. If the number of family members claimed as dependent increases, then people’s income may also increase but they remain eligible for the credit.

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In the table below find the eligible income limit range depending on the size of the family.

 Family size Eligible income range
  1 $12,490–$49,960
  2 $16,910–$67,640
  3 $21,330–$85,320
  4 $25,750–$103,000
  5 $30,170–$120,680
  6 $34,590–$138,360
  7 $39,010–$156,040
  8 $43,340–$173,720

How do People Receive Health Care Tax Credit?

People can receive health care tax credit either through an advance premium tax credit or through a tax refund. Both these methods qualify people for the same number of credits but the difference lies in the eligibility requirements and the time when they would receive the eligibility. People can apply for advance premium tax credits when applying for health insurance through the marketplace and with advance premium tax credit the government directly sends the money every month to the health insurance company. The insurance company ten credit that money toward the people’s health insurance premium, thereby reducing the amount which they owe every month.

However, in case if people are not eligible for advance premium payments, then a tax refund is available for them. When filing taxes, people will subtract the entire tax credit amount from the taxes they owe. But during the plan year, people will pay more amount per month for their insurance, since they would be responsible for their share of the premium and the amount that would have been covered by the tax credits. Thus, if people want to have low disposable income, then they should take the advance premium tax credit if they qualify because this will be more beneficial.

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What happens if People’s Family Size or Income Change during the Year

People should remember that life-changing events affect their tax credit eligibility, as their claim amount can either increase or decrease. Some of the life-changing events that affect premium tax credits include:

  • Marriage
  • Divorce
  • Increase or decrease in household income
  • Adoption
  • Gaining or losing employer-sponsored or government-sponsored plan

Since the tax credit is determined by the marketplace therefore it is important to immediately report about the changes so that one’s eligibility can be updated accordingly. If people are using the advance premium tax credit, then it becomes vital to report any life change to the marketplace. It is important because delaying the reporting may lead to discrepancies between what people paid and what they should pay. In case if people used more advance premium tax credits than allowed, then they may have to pay back money while filing their federal income tax return. Similarly, if they used tax credit less than the amount allowed, then they may get an extra refund, known as reconciling advance premium tax credits.

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