Unless you’ve been living under a rock, you know that most Americans will be required to have health insurance starting in 2014, thanks to the Affordable Care Act. The Department of Health and Human Services estimates that on average, Americans will pay $328 per month for individual health care coverage next year. If you’re worried about how the cost of insurance will fit into your budget, there is hope. You may be able to claim the Premium Tax Credit, which can make your health insurance more affordable.
How the Premium Tax Credit Works
The Premium Tax Credit is designed to offset some of the costs of your monthly insurance premiums. Your eligibility for the credit is determined when you apply to purchase insurance through the federal Health Insurance Marketplace. The Marketplace lets you buy insurance at one of four different premium levels: bronze, silver, gold, and platinum. The tax credit is only available for those who buy coverage at the silver level or higher.
If you qualify for the credit, you’ll be given the option of getting the credit in advance. Instead of applying the credit towards your taxes owed or adding it to your refund when you file, the IRS would forward the amount of the credit you qualify for directly to your insurer. The insurance company would then apply the money to your premiums and you would be responsible for paying the difference. If you qualify but you decide not to take the advance payments, you’ll have to claim the full amount of the credit when you file your 2014 return in 2015.
Who’s Eligible for the Credit
Generally speaking, you have to meet all of the following guidelines to qualify for the Premium Tax Credit:
- You have to buy your insurance through the Marketplace
- You must be ineligible for coverage through an employer or government-sponsored plan, such as Medicaid
- Your income has to be within certain limits
- You must file a joint return if you’re married
- You can’t be claimed as a dependent on someone else’s return
The federal government has established income ranges based on the family size that determine whether you can get the credit. As of 2013, it’s expected that single filers earning between $11,490 and $45,960 will qualify. Married couples with no dependents with an income ranging from $15,510 to $62,040 are also eligible. A family of four could qualify with an income of $23,550 to $94,200. It’s important to keep in mind that these numbers are only estimates and they will likely be higher in 2014.
It’s also worth noting that President Obama has expanded the income guidelines for Medicaid eligibility in some states starting in 2014. If your income falls below 138 percent of the federal poverty guidelines, you may be able to get Medicaid which means you won’t have to worry about paying any premiums at all. The downside is that not every state has adopted the expanded guidelines which means some taxpayers may not be eligible to get Medicaid or the premium tax credit.
How Much is the Credit Worth?
The amount of the credit is based on the family size and income information you enter on the Marketplace application. Your annual premiums are calculated using a sliding scale, based on what percentage of the federal poverty level (FPL) your income is equal to. The scale ranges from 100 percent to 400 percent of the FPL.
For example, using the Kaiser Family Foundation Subsidy Calculator, a 25-year-old single filer making $20,000 a year would have an income equal to 174 percent of the federal poverty level, which makes him eligible for a tax credit of $1,524. Assuming he’s a non-smoker, premiums at the silver level would cost $2,545 per year, or around $212 a month. With the credit, the same coverage would drop to just $85 a month. Generally, the higher your income, the more the credit will be worth.
If Your Income Changes
When you apply for insurance through the Marketplace, it’s important to remember that the amount of the credit you qualify for is only an estimate. If you experience a significant drop or increase in income or your household size changes, you’ll need to report it to make sure that the amount of the credit is adjusted accordingly. If not, you could find yourself up having to repay some or all of the credit when it’s time to file your taxes.
Navigating the new health insurance rules can be confusing so it’s important to make sure you have all the facts. Understanding what type of tax help is available can ensure that you get the best deal possible when it comes to your health care coverage.