now later subsidy

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If you’ve heard or read anything about Obamacare, chances are you’ve heard the word subsidy used many many times, but may not understand what it means, and what it can mean to you. A subsidy is a government-offered benefit to certain groups of people. These benefits can be given in a variety of ways and are not limited to health insurance. For example, low rates on housing or student loans are subsidies. Welfare and unemployment payments are types of subsidies as well. As you can see, they are offered to individuals in many ways, but they are all aimed at promoting social and economic policy in the interest of the public. In terms of health insurance, subsidies are offered two ways, and the one we’ll look at here is a subsidy offered in the form of a tax credit.2

Applying the Tax Credit to Your Premium

In order to be eligible for a tax credit subsidy for your health insurance, you must enroll in coverage through the Health Insurance Marketplace and file a tax return. When seeking coverage through the Marketplace, you will be required to answer a few questions regarding your household size and income to determine your eligibility for the subsidy. If you qualify, the subsidy will apply to your insurance premium in what is referred to as a premium tax credit.3

This credit can be applied to your insurance premium in one of two ways. The first option is to have the amount be immediately applied to your premiums through your health insurance provider. This will reduce the cost of your monthly bill for your health insurance. The other option is to have none of it applied to your monthly premiums and wait until the end of the year and claim the premium tax credit on your federal income taxes.1 Whichever option you choose, you’ll end up saving money!

now later subsidy

Qualifying for the Subsidy

As mentioned above, one of the requirements for qualifying for a subsidy is to enroll in health coverage through the Marketplace, but there are a few additional requirements you must meet as well:1

  • The subsidy is based on household income, as it is the goal of Obamacare to provide affordable health insurance to those who may not otherwise be able to afford it on their own. Your household income must fall between 100% and 400% of the federal poverty line for your family size
  • If you are unable to enroll in an affordable insurance plan through your employer that provides minimum value, you will not qualify for a subsidy
    • A plan is not considered affordable if the annual premium to cover only yourself exceeds 9.56% of your income
    • A plan meets minimum value if it pays 60% or more of the total allowed cost for medical services and also provides significant coverage for inpatient and physician services
  • Filing “Married Filing Separately” on your taxes makes you ineligible for the tax credit
  • If you are claimed as a dependent on someone else’s tax return, you are not eligible for the premium tax credit

The Subsidy and Your Taxes

Because the subsidy is offered through a tax credit, you will be mailed a tax form to be completed. You will complete this form to determine if the amount you received for your tax credit is consistent with the amount of your actual credit. If you chose to have your credit applied to your insurance premium in advance and the credit applied is less than the actual credit, you will receive a higher refund or a lower tax due. If the credit applied to your insurance premium in advance is higher than the actual credit, you will be responsible for paying the difference with your tax return.1

Reporting Changes to the Marketplace

If you enroll in a health insurance plan through the Marketplace and experience any changes in the income or household information you reported on your original application, you should report it to the Marketplace. Because your tax credit is based on that original information, any change may alter your eligibility or the amount that you are qualified to receive. In order to avoid any unwanted surprises at the end of the year on your federal income tax, you should contact the Marketplace to provide them with the most current information.1, 3

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Citations

  1. Questions and answers on the premium tax credit. (2015, July 13). Retrieved from The Internal Revenue Service website: https://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Questions-and-Answe
    rs-on-the-Premium-Tax-Credit
  2. Subsidy. (2015). Retrieved from Investopedia website: https://www.investopedia.com/terms/s/subsidy.asp
  3. The health insurance marketplace. (2015, July 13). Retrieved from https://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/The-Health-Insurance-Marketplace