How Does The Health Insurance Tax Credit Work?
A premium tax credit might help you save money on your health insurance premiums. It is only available to people who buy insurance via a state or federal health insurance marketplace, and you must fulfill certain income and family size requirements to be eligible. When you apply for a marketplace health insurance plan, you'll find out if you're qualified.
If you run a small business with less than 25 workers, you may be eligible for government subsidies to help pay for your employees' health insurance.
What Exactly Is A Tax Credit For Health Insurance?
A premium tax credit, often known as a premium subsidy, reduces the cost of health insurance. The credit can be applied to your monthly insurance cost or received as a refund on your federal income taxes.
The credit, established as part of the Affordable Care Act (ACA), is intended to assist qualifying families or individuals with low to moderate incomes in purchasing health insurance. Premium tax credits are available only if you enroll in a qualified health insurance plan through the federal or state marketplaces.
Catastrophic coverage does not qualify for health insurance tax credits, which is a significant exclusion.
The federal government determines the amount of the health insurance tax credit, thus it is the same across the country.
How Can I Find Out If I'm Eligible For A Tax Credit?
When you apply for coverage through a health insurance marketplace, also known as an exchange, the system will evaluate your tax credit eligibility based on your income and household size.
If your income is less than the federal poverty line (FPL), you may be able to enroll in Medicaid. Most states have now expanded Medicaid eligibility to earnings at or below 138 percent of the federal poverty line (FPL), giving low-income people greater health insurance options.
If your income exceeds 400% of the FPL, you may still be eligible for health insurance discounts.
As part of the American Rescue Plan Act of 2021, the so-called "subsidy cliff" of 400 percent of the FPL was repealed for 2021 and 2022. For individuals who qualify, health insurance rates are capped at 8.5 percent of income, with relevant tax credits balancing the cost.
Our Affordable Care Act subsidy calculator will help you determine your tax credit eligibility. If you qualify, the monthly premium cap reveals how much you would pay for the marketplace's second-cheapest Silver plan.
The amount of money you can get is determined by two factors: the size of your family and your salary. As the number of family members you claim as dependents grow, so does your income while still qualifying for the benefit. For example, if you have a family of three, you can earn up to $86,880 and still be eligible. In comparison, a family of two can only have a household income of $68,960 or less.
What Are The Income Eligibility Requirements For The Health Insurance Subsidy?
The Department of Health and Human Services (HHS) sets the income criteria each year. Below are the minimum and maximum acceptable income restrictions based on family size. It is vital to remember that you would use the previous year's federal poverty level to evaluate eligibility and apply for health care tax credits for the current year. When you submit your tax return for the 2021 tax year, you will compare your household income to the 2020 FPL values indicated below.
| Household/family size | Eligible income range |
| 1 | $12,760-$51,040 |
| 2 | $17,240-$68,960 |
| 3 | $21,720-$86,880 |
| 4 | $26,200-$104,800 |
| 5 | $30,680-$122,720 |
| 6 | $35,160-$140,640 |
| 7 | $39,640-$158,560 |
| 8 | $44,120-$176,480 |
How Does The Tax Credit For Health Insurance Work?
There are two ways to obtain health care tax credits:
Advance premium tax credit-The advance premium tax credit (APTC) calculates how much you will spend on health insurance each month.
Federal tax refund-Allows you to collect your health insurance subsidy all at once at the end of the year or to settle any disparities with your monthly tax credits.
The two options would entitle you to the same number of credits, but they differ in terms of eligibility and when you receive the subsidy. Here's how advance premium tax credits may help you save money on your monthly expenses.
- Apply for insurance on the marketplace and obtain an estimate of your savings.
- You pay a lower premium for health insurance, and your insurer receives the tax credit.
- When you file your federal income taxes, you must reconcile your final tax credit amount.
When you apply for health insurance through the marketplace, you can apply for the advance premium tax credit (APTC). Every month, the government distributes advance payments directly to the health insurance firm under this arrangement. The insurer then applies that money to the cost of your health insurance premiums, lowering your monthly out-of-pocket expenses.
If you are not qualified for advance premium payments, you may be eligible for a tax refund. When submitting your taxes, deduct the whole amount of the tax credit from the total amount of taxes owed. However, you would pay more every month for health insurance throughout the plan year since you would be liable for your portion of the premium as well as the amount that would have been paid by the tax credits.
As a result, if you anticipate having little spare income, getting the advance premium tax credit may be more advantageous if you qualify.
Anyone who is eligible for a health insurance tax credit must file Form 8962 (Premium Tax Credit) together with their tax return. To fill out Form 8962, you'll need the information from Form 1095-A (Health Insurance Marketplace Statement), which is a statement that tells you how much your health insurance coverage cost and how much you got in subsidies. The eligible income recorded on your Form 1040 individual tax return determines your ultimate health insurance tax credits.
What Happens If My Family Size Or Income Fluctuates During The Year?
Life-changing events might affect your tax credit eligibility by raising or lowering the amount you can claim. The following events may have an impact on your premium tax credits:
- Income fluctuation in your home
- Marriage
- Divorce
- A kid is born.
- Adoption
- Obtaining or losing health insurance
Because the marketplace determines your tax credit, it is critical to notify changes as soon as possible so that your health plan eligibility may be adjusted. If you are presently receiving the advance premium tax credit, it is very vital that you notify the marketplace of any life changes as soon as possible.
If you wait too long to notify such adjustments, there might be disparities between what you paid and what you should have paid. If you utilized more advance premium tax credits than you were permitted, you may have to pay back the money when you file your federal income tax return. However, if you used less than the allotted amount, you may be eligible for additional reimbursement. This is referred to as "reconciliation" of your advance premium tax credits.
Premium Tax Credit Vs. Health Coverage Tax Credit (PTC)
Health coverage tax credits (HCTCs) are similar to premium tax credits in that they reduce your health insurance payments. HCTCs are refundable tax credits that cover 72.5 percent of eligible individuals' and families' qualifying health insurance premiums. You would pay the balance of the premium.
The HCTC varies from the previously stated health care tax credit in that eligibility is determined by your income and family size. If you wish to claim HCTCs, you must complete Form 8885. (HCTC).
You could be qualified if you match one of the following criteria:
- Because of a qualifying job loss, you are enrolled in a Trade Adjustment Assistance programme.
- You are between the ages of 55 and 64 and receive payments from the Pension Benefit Guaranty Corporation.
If you receive the HCTC, you will be sent a Form 1099-H (HCTC Advance Payments) detailing your disbursements. You cannot claim both the health coverage tax credit and the premium tax credit for the same health insurance coverage in the same calendar year.
The HCTC programme came to an end on December 31, 2021. If Congress decides to continue the program, the IRS will make the necessary changes and notify those who may be affected.
What Exactly Is The Health Care Tax Credit For Small Businesses?
If you operate a small business, you may be eligible for a tax credit that subsidizes your employees' health insurance payments.
If a company has less than 50 full-time employees, it is not usually obliged to provide health insurance. As a result, the ACA's small company health care tax credit incentivized small business owners to provide health insurance to their employees.
You and your company would be eligible for the credit if you met all of the following criteria:
- You obtained insurance through the SHOP (Small Business Health Options Program) marketplace.
- You employ fewer than 25 full-time workers.
- You pay less than $56,000 each year on average.
- You pay at least half of the premiums for your full-time workers' health insurance.
If you qualify, the federal government will pay a portion of your employee premiums for you. The quantity of credit you may obtain is determined on the size of your employees. For example, if your company has less than ten full-time employees, you can get the maximum credit. A larger company with 24 workers would be eligible for a lesser tax credit.
Tax Credit For Self-Employed Health Care
If you are self-employed, your eligibility for the health insurance tax credit is determined by the same FPL rules mentioned in the table above for families. Self-employed persons will fulfill the first qualifying condition for health insurance tax credits since they normally purchase a marketplace plan.
However, calculating the number of tax credits you should receive is more difficult if you are self-employed. The self-employed health insurance deduction has an effect on your adjusted gross income (AGI). The premium tax credit you receive is thus directly related to your adjusted gross income, which also influences your qualifying deduction.
The IRS has made statements to address this issue and provides for a simplified computation if you file your taxes on your own. However, that simplified computation usually results in a tax credit that is less than the amount for which you qualify. If you are self-employed, we recommend visiting a tax expert or a tax preparation firm that employs software that can solve this issue in order to earn the greatest tax credit.
Commonly Asked Questions
A health insurance or premium tax credit can help you save money when you buy insurance through HealthCare.gov or a state marketplace. To qualify, you must fulfill certain income requirements. Discounts can be applied to your health insurance premium on a monthly basis, or you can get the credits as a refund when you file your federal income taxes.
When you sign up for health insurance through a federal or state marketplace, you'll find out if you qualify for health insurance tax credits. After inputting your income and household size, the marketplace application will tell you if you qualify and how much of a subsidy you'll receive.
No, the tax credits are intended to make health insurance more affordable, and any reductions you receive are non-refundable. The sole exception is if you neglect to disclose a status update, such as an increase in income, which reduces the amount of your tax credit.
You are qualified for a 2021 tax return submitted in 2022 if your income is between 100 and 400 percent of the federal poverty line. A single person, for example, qualifies if their annual income is between $12,760 and $51,040. See the complete table.