Executive Summary
The premium assistance tax credit, established under IRC Section 36B as a part of the Affordable Care Act (also known as "Obamacare"), took effect in 2014, and is intended to help make health insurance more affordable by providing a tax credit to subsidize the cost of insurance for “lower” income individuals.
In practice, though, the introduction of the premium assistance tax credit creates a new series of rules that financial planners must be aware of, for a wide range of clients who may potentially be eligible for the credit, which can apply for individuals with income up to $47,080 and a family of four earning $97,000 (in 2015, and adjusted annually for inflation). And given the dollar amounts involved for the credit itself (which can be worth several thousand dollars to a family), the ramifications of effective health insurance tax credit planning can be significant.
While the new health care rules have been controversial, with the new health care exchanges opening for enrollment on October 1st (albeit with some technology glitches and speed bumps so far!), the time is now for advisors to begin to get familiar with the new rules and some of their tax planning implications. For some uninsured clients, this may represent their first opportunity ever to get access to health insurance without medical underwriting - and with a premium subsidy to help - creating a newfound flexibility for employment and retirement decisions. For others, it will be important to comply with the new rules simply to avoid the potential penalties under the so-called "individual mandate."
Michael's Note: This article has been updated for the 2015 tax year, for those preparing their tax returns in early 2016.
Eligibility Rules
For the premium assistance tax credit, “lower” income is defined as those households that earn less than 400% of the Federal Poverty Level (FPL). The Federal Poverty Level thresholds are adjusted for inflation each year, and are determined based on the number of people in the household. For example, in 2015, the FPL was $11,770 for an individual and $24,250 for a family of four, which means at least some premium assistance credit is available for households with incomes up to $47,080 for individuals and $97,000 for a family of four (see table below for further detail). Each year, the premium assistance tax credit thresholds are adjusted for annual inflation-adjusted Federal Poverty Levels.
| Household Size | Federal Poverty Level (Percentage Of) | |||||
|---|---|---|---|---|---|---|
| 100% | 133% | 150% | 200% | 300% | 400% | |
| 1 | $11,770 | $15,654 | $17,655 | $23,540 | $35,310 | $47,080 |
| 2 | $15,930 | $21,187 | $23,895 | $31,860 | $47,790 | $63,720 |
| 3 | $20,090 | $26,720 | $30,135 | $40,180 | $60,270 | $80,360 |
| 4 | $24,250 | $32,253 | $36,375 | $48,500 | $72,750 | $97,000 |
| 5 | $28,410 | $37,785 | $42,615 | $56,820 | $85,230 | $113,640 |
| 6 | $32,570 | $43,318 | $48,855 | $65,140 | $97,710 | $130,280 |
| 7 | $36,730 | $48,851 | $55,095 | $73,460 | $110,190 | $146,920 |
| 8 | $40,890 | $54,384 | $61,335 | $81,780 | $122,670 | $163,560 |
| Each add'l | $4,160 | $5,533 | $6,240 | $8,320 | $12,480 | $16,640 |
Notably, at these thresholds, recent research by Kaiser Family Foundation suggests that as many as 2/3rds of all households in the US would be eligible for at least a partial premium assistance tax credit based on income (though far fewer than that amount will utilize it, as many still receive coverage through an employer plan or government programs instead). Given the breadth of the credit, though, arguably the credit is more of a “lower” and “middle” income credit than just a low income tax credit, and should not be viewed as applying solely to “poor” individuals and families (as the media has sometimes implied).
Defining Income
“Income” for the purposes of the premium assistance tax credit and the FPL is based on modified Adjusted Gross Income (AGI), which means AGI increased by any income not reported due to the foreign earned income or housing cost assistance exclusions, any tax-exempt interest (i.e., municipal bond income), and any Social Security benefits that were otherwise excluded from income. In other words, household income for the purposes of the credit will include Adjusted Gross Income plus all bond interest (taxable or tax-exempt to the extent not already included), and plus all Social Security benefits (taxable or tax-exempt to the extent not already included).
Final regulations on how state exchanges will gather information to verify an applicant’s income indicate that exchanges will rely primarily on IRS and Social Security Administration data (e.g., using the applicant’s prior year tax return will be used initially), and substantiated based on wage data verified through Equifax. Notably, the White House administration has delayed implementation of the income verification rules, leaving income verification for now on the “honor system” (with random checks of a statistically significant sample to verify compliance), but raising concern from many that there may be a higher incidence of fraudulent income reporting to qualify for the subsidy in the coming year (though ultimately, inappropriately reported amounts could still be recaptured by the Federal government when the subsequent tax return is filed later, as discussed below, limiting the potential scope of any fraud).
Notably, individuals are only eligible for the premium assistance tax credit if they are enrolled in a qualifying health plan (QHP), which means coverage that is offered through an exchange, provides essential health benefits, and meets actuarial requirements. In addition, the premium assistance tax credit is available only if the individual is not already receiving "affordable" minimum essential health coverage elsewhere (e.g., from a government program, employer-sponsored plan, etc., that meets the minimum value and affordability requirements). Thus, in practice the premium assistance tax credits are primarily for those who don't otherwise already have access to health insurance, and/or for whom their other (e.g., employer) health insurance is unaffordable after the employer's contribution.
Credit Payments And Amounts
Notably, unlike many other tax credits, the premium assistance tax credit is not paid directly to/received directly by the taxpayer. Instead, premium assistance tax credits are paid directly to the new health insurance exchanges, which in turn make a subsidy payment to the provider of the health plan on behalf of the individual, such that the insured is only billed for only the remaining portion of the insurance premium. In fact, individuals will be able to determine the amount of the credit they’ll be eligible for before even applying for coverage, so they know up front exactly what their share of the premium obligation will be. Once eligibility is determined and the credit amount is calculated, the credit is applied automatically on a monthly basis for every month that the individual remains eligible and paying for coverage.
This approach – where the tax credit is provided directly to the insurer through the exchange to cover a share of the premiums – reduces the upfront out-of-pocket cost of health insurance for eligible lower income individuals. This is a far more cash-flow-friendly approach than requiring them to pay the full amount up front and recover the tax credit later (which might result in unmanageable cash flow constraints).
The goal of the premium assistance tax credit is to limit households to paying no more than a certain percentage of income (as defined earlier) on their health insurance coverage, where any excess above those thresholds are covered by the credit. The chart below shows the thresholds for the premium assistance tax credit; notably, the higher the level of income, the higher the percentage of income that is expected to be paid towards health insurance. The premium assistance tax credit is technically refundable, which means it can apply even for individuals who do not otherwise owe any income taxes.
| Income relative to FPL: | Premiums limited to: |
|---|---|
| 100% to 133% of FPL | 2% of income |
| 133% to 150% of FPL | 3% to 4% of income |
| 150% to 200% of FPL | 4% to 6.3% of income |
| 200% to 250% of FPL | 6.3% to 8.05% of income |
| 250% to 300% of FPL | 8.05% to 9.5% of income |
| 300% to 400% of FPL | 9.5% of income |
For those whose incomes fall between the ranges shown in the chart, their premium limitation moves pro-rata along the range. For instance, a client at 175% of the FPL (mid-way between the 150% and 200% tiers) would have premiums limited to 5.15% of income (mid-way between the 4% and 6.3% thresholds). However, the premium limitation for those under 133% of FPL is a flat 2%; as a result, moving from 132.9% to 133.1% of the FPL does result in a jump up in the threshold (and therefore a jump down in the premium assistance tax credit) from 2% of income to 3% of income. Similarly, those moving from 399.1% to 400.1% of the FPL jump from having premiums capped at 9.5% of income to having no limit at all.
The actual amount of the credit itself is the excess of the premium cost for a “benchmark plan” above the threshold amounts as determined from the chart above. The cost for the benchmark plan is based on the second lowest cost Silver plan available on the exchange to cover the individual’s entire household based on their age, rating area, and number of people in the family (but not adjusted for tobacco use).
Example 1. Bill is a single, 35-year-old non-smoker, and earns $25,000 per year. His income is 212% of the $11,770 FPL (in 2015) for a household size of 1. Accordingly, this puts him roughly midway between the 6.3% and 8.05% threshold for maximum premium; his exact threshold is 12/50ths of the way from 200% to 250% of the FPL, so his maximum premium is 12/50th of the way between 6.3% and 8.05%, which means his maximum premium is 6.72% of his $25,000 income, or $1,680/year. If the actual premium for the second lowest cost Silver plan in his state is $300/month (or $3,600 per year), Bill’s premium assistance tax credit will be $1,920 (which brings his premium down to the maximum cap of $1,680/year). Accordingly, Bill will pay $140/month ($1,680/year) for his health insurance, with the remaining $160/month covered by the premium assistance tax credit. Notably, if Bill chooses to buy a different plan besides the Silver, which may cost more or less, his premium assistance tax credit will continue to be $155.58/month, but his share of the premium will be the remainder left over (whatever that comes out to be).
Example 2. Continuing the above example, assume instead that Bill is a smoker, and as a result while the second-lowest Silver plan is $300/month, his actual premium is $500/month. Because the premium assistance tax credit is based on the cost of a non-smoker, his tax credit will remain $160/month, and his out-of-pocket cost will rise to $340/month instead of $140/month. Accordingly, the increased $200/month premiums attributable to his smoking must be borne entirely on his own.
Example 3. Continuing the first example, assume instead that Bill earned $40,000/year, putting him at 340% of the FPL. His premium threshold would be 9.5% x $40,000 = $3,800. However, his actual premiums, due to his young age and health, are only $3,600/year. Accordingly, Bill would actually not be eligible for a premium assistance tax credit, simply because his premiums are already below the 9.5%-of-income threshold.
Another way to view the premium assistance tax credit is simply to recognize that the formulas effectively cap the maximum amount of premiums that anyone (under 400% of FPL) will be required to pay out of pocket. To the extent that premiums (for a benchmark plan) are higher than the maximum premium, the excess is covered by the premium assistance tax credit. Accordingly, the table below shows the maximum out-of-pocket premium that would be due at various income levels and various family sizes; ultimately, the maximum out-of-pocket amounts for 2016 will be slightly higher based on 2015 FPL thresholds.
| Income Relative To FPL |
Max Prem % of Income |
Family Size | ||||
|---|---|---|---|---|---|---|
| 1 | 2 | 3 | 4 | 5 | ||
| 100% | 2% | $235.40 | $318.60 | $401.80 | $485.00 | $568.20 |
| 132.9% | 2% | $313.08 | $423.74 | $534.39 | $645.05 | $755.71 |
| 133.0% | 3% | $469.62 | $635.61 | $801.59 | $967.58 | $1,133.56/td> |
| 150% | 4% | $706.20 | $955.80 | $1,205.40 | $1,455.00 | $1,704.60 |
| 200% | 6.3% | $1,483.02 | $2,007.18 | $2,531.34 | $3,055.50 | $3,579.66 |
| 250% | 8.05% | $2,368.71 | $3,205.91 | $4,043.11 | $4,880.31 | $5,717.51 |
| 300% | 9.5% | $3,354.45 | $4,540.05 | $5,725.65 | $6,911.25 | $8,096.85 |
| 350% | 9.5% | $3,913.53 | $5,296.73 | $6,679.93 | $8,063.13 | $9,446.33 |
| 400% | 9.5% | $4,472.60 | $6,053.40 | $7,634.20 | $9,215.00 | $10,795.80 |
Reconciling Credit Over- Or Under-Payment
At the end of the year, those eligible for premium assistance tax credits will be required to reconcile the actual credit that should have been earned based on actual income that year, with the amounts that were subsidized to the exchange, and receive either a refund (if more credits are due) or owe an additional tax obligation (if the subsidies were “overpaid” relative to the actual credit earned). The amount of the credit that was applied on the individual’s behalf by the exchange will be reported to the IRS by the end of January after the close of each tax year in the future on the new Form 1095-A.
If the credit was overpaid to the exchange, there is a maximum that can be recovered via the tax return (which would be relevant if there was a significant change in income, or potentially in 2014 if individuals simply underreport income to qualify for the credit before the income verification rules are implemented). The recovery limits are themselves based on the individual’s income for that year; couples/families with income below 200% of the FPL face a maximum recovery amount of $600, while households up to 300% of FPL face a maximum of $1,500 and those up to 400% of FPL may be subject to a $2,500 recovery amount (the limits for a single individual are 50% of these dollar amounts with the same percentage-of-FPL thresholds). These dollar amounts are indexed for inflation. If the household income exceeds 400% of the FPL, the entire amount of any premium assistance credits “accidentally” advanced on behalf of the individual or family must be repaid as an additional tax liability when the tax return is filed.
Notably, these limits only apply if the amount of advanced tax credits was too high, such that the taxpayer was overcredited and needs to pay back the excess amounts received; if the credits were too low, there is no limit on what the taxpayer can receive in additional credits when the tax return is ultimately filed (beyond the limits of the premium assistance tax credit itself) in the event that income dropped significantly and a higher credit was due.
Other Details About Premium Assistance Tax Credits
To the extent that health insurance premiums are covered by a premium assistance tax credit, they are not deductible as medical expenses; however, any remaining premiums actually paid out of pocket are eligible to be deducted (albeit subject to the 10%-of-AGI floor for such deductions).
Thus, for example, if the individual had health insurance for the year that cost $5,000, and received $1,000 of premium assistance tax credits, only the remaining net $4,000 of health insurance premiums that were paid out of pocket could be claimed as a medical expense deduction. In fact, given the high 10%-of-AGI threshold for deducting medical expenses, and the fact that premiums will be partially subsidized for many, it’s unlikely that most clients will be able to obtain much of any deduction at all, especially if they are high income.
On the other hand, the reality is that such an outcome is actually the intent of the law in the first place; the bulk of tax assistance benefits for health insurance will be conveyed through the premium assistance tax credit specifically targeted at lower income individuals (who generally don’t benefit from medical expense deductions due to the simple fact that they don’t itemized deductions at all) while only limited benefits will be available through the medical expense deduction to higher income individuals. On the other hand, some clients may find that health insurance premiums, when added to medical expense deductibles and other payments actually made throughout the year, can still yield some amount of medical expense deductions (especially if the client already itemizes, and has other medical expense deductions such as dental care or permissible long-term care costs).
As a result, the new health insurance rules would essentially break clients into three groups: those above 400% of the Federal poverty level, who pay the full cost of their insurance (and may or may not be able to deduct any of it); those below 400% of the Federal poverty level, who will pay for coverage but receive a premium assistance tax credit to partially ameliorate the cost (and might also partially deduct); and those below 133% of the Federal poverty level, who will potentially owe no premiums at all and will simply be covered by Medicaid. On the other hand, because not all states are adopting the new 133%-of-FPL Medicaid thresholds, some lower income individuals below this threshold but above 100% of FPL will still be expected to purchase insurance through an exchange (albeit subject to the 2%-of-income maximum limit on the cost of coverage), and those below 100% of FPL may be ineligible for the premium assistance tax credit and ineligible for Medicaid!
The bottom line, though, is that the availability of the premium assistance tax credit creates a significant planning opportunity for clients. Given that the new insurance exchanges offer health insurance regardless of actual health or pre-existing conditions, the new rules will shift the health insurance discussion for clients from how to access insurance (e.g., through an employer that offers coverage) to how to afford insurance (through a combination of paying premiums and being eligible for premium assistance tax credits). For many clients, the availability of coverage - and especially the support of premium assistance tax credits - may make it easier for them to change jobs, start a new business or consulting practice, or retire early without worrying about health insurance. In fact, in such situations, not only do the new health insurance exchanges ensure access to coverage, but the decline in income associated with such life transitions may actually result in premium assistance tax credits that make coverage remarkably affordable.
(Michael's Note: This article is an excerpt from the July/August 2013 issue of The Kitces Report. Click here for further information about this and other newsletter issues, including eligibility for CFP CE credit.
As I first read and understood the tax credit (from a different website, I think it was covered California’s site) it sounded like we would have to pay out of pocket each month and then get reimbursed once we filed our taxes, so you are saying this is not true, we will just have to pay the difference every month? Because for my husband and I to get coverage we were expecting to pay around $450 a month out of pocket and didn’t think we would get reimbursed until April the following year. Your version sounds better. 🙂 Sorry if this is worded wrong, this whole thing has me frazzled. Btw, we reside in California.
It looks like the credit is applied automatically through the insurer. If I’m reading his article right it looks like you will just pay the adjusted difference between the premium and the credit on a monthly basis.
That is also my understanding. The credit is paid by government to the insurer up front to avoid cash flow problems that might make the coverage non-affordable.
Michael:
Another area area of benefit that I rarely hear discussed is the benefit of the new law for divorcing couples. Oftentimes negotiations are stalled because the healthcare coverage is tied to the employer of one of the parties, the price of COBRA, how do we cover the kids, etc. I foresee that the new access to coverage through exchanges will help unlock this problem area.
Chip Simon, CFP(r)
Poughkeepsie, NY
So Chip and Michael,
Does this mean that in the case of a divorce, there is 3 years of COBRA coverage then the state exchange?
Thanks!
Bridget Sullivan Mermel CPF(R) CPA
Chicago, IL
Bridget,
Strictly speaking, I believe both would still apply. The new health care exchanges didn’t eliminate COBRA, it’s simply an overlapping law.
From a practical perspective, I can’t imagine why someone would still want to go through COBRA when there’s coverage easily available from the exchange, except for the simple reason that the coverage might turn out to be cheaper and/or better cost/benefit value.
Deleted. Just merely being offered COBRA does not stop someone from getting the tax credit to buy insurance from the exchange.
I have never known Cobra to be reasonable.
The ACA provides for yearly reconciliation and paybacks if one’s income rises. Since signing up at a relatively moderate income level, I find out that a modest ($25,000) estate distribution will put me over the 500% threshold. Does estate income count against me when I reconcile the ACA premium subsidy credit?
This seems to somewhat level the tax expenditure playing field between those who receive health insurance at work (deductible to the employer/not income to the employee) and those who need to obtain coverage in the individual market.
Steve,
It evens out for some, but not others, due to the nature of how low-income credits operate.
In practice, for the lowest income individuals, they’ll benefit more from the credit than they ever would have from the employer tax break. For higher-income individuals, who may not qualify for the tax credit at all, the employer tax benefit is far superior.
Indirectly, though, that was the point – to shift the benefit of the tax expenditure to be more focused on lower-income individuals than higher income individuals.
Best condensation I’ve seen yet! While “the act” remains chalanging to comprehend, I applaud this author’s work. Until now, nobody has boiled it down to five (serious) pages of content. Nice job.
Great article; very good detail. What about other items that impact AGI, such as capital losses, IRA deductions, etc? Do we have to back out those items that reduce AGI or can we keep those in?
The only items adjusted in/out of AGI are the ones noted in the article – untaxed Social Security benefits, otherwise-tax-exempt municipal bond income, and certain foreign earned income and housing exclusions. Anything else otherwise allowed as deductions for AGI apply for the Premium Assistance Tax Credit. That’s the whole purpose of the fact that the system uses AGI (except for specifically enumerated modifications).
– Michael
Can I let turbo tax decide what my MAGI is , for the purposes of APTC calculation? I can’t tell if a $5,500 IRA contribution gets added back to the AGI, or whether a scholarship is added back, etc
What a Mess!
Will amounts contributed to IRAs in 2014 be excluded when calculating Modified Gross Income for subsidy purposes (max of $13,000 for a married couple in 2013)? Are there other tax- deferral methods that can be utilized to qualify for the 9.5% premium cap and the premium subsidy?
http://laborcenter.berkeley.edu/healthcare/MAGI_summary13.pdf
Greg,
Yes, as a normal above-the-line deduction against AGI, a pre-tax IRA deduction would reduce MAGI for purposes of calculating the Premium Assistance Tax Credit.
– Michael
Does we estimate our 2014 earnings by mid December of this year and use that number? I was told that we are to use our 2012 modified AGI.
Initially, you use your 2012 modified AGI to estimate your premium assistance tax credit. Ultimately, it will be based on your actual 2014 income as reported on your 2014 tax return (in early 2015); to the extent your actual 2014 income turns out to be different than the based-on-2012-estimate, your tax credit will be adjusted up/down at that time when determining your final tax liability/refund on your return.
Lat year I received $4000 on my Federal Tax return. When applying for Obamacare it appeared that my ‘subsidy’ was $4000/12 because my subsidy was about $335 a month. Does this mean they are just going to take my tax refund and apply it to my healthcare? Is the ‘subsidy’ actually my tax refund divided by 12?
Dave,
If the $4,000 amounts of your prior tax refund and the premium assistance tax credit lined up, it was sheer coincidence. The calculation of the Premium Assistance Tax Credit has absolutely no relationship to the size of your refund last year. It’s calculated based on your income and the formulas discussed in the article, not whether or how much of a refund you received in the past.
Thank you….and phew!……thank god…..so if all things stay the exact same with me this year….will i still get the same tax refund?…i feel like im gunna lose something?
Hey Dave, did you ever find out if that tax credit money will be deducted from your refund at the end of the year?
It is. H and R Block has it listed under credits. :-). If you do not use the credit, you get it back. If you use it, obviously they verify you paid accordingly, then you don’t get anything or they adjust to your final income.
I was listening to a gentleman explain some of the pit falls of Obamacare. He said, if you go the exchange, sign up and accept the subsidy or the premium assistance tax credit (since my income is 165% of poverty level) that you become part of the Medicaid program and therefore, if you sell your home that any profits must be paid back to the government. Is any of this true? I appreciate any comments. Thanks.
Richard,
No, this is absolutely false. The premium assistance tax credits are an entirely separate program from Medicaid. One has nothing to do with the other, and there is no form of “estate recovery” whatsoever for the government to get back premium assistance tax credits against the assets in your estate when you pass away.
There are some states that have a recovery process against assets at death if you rely on Medicaid (Wisconsin just passed a particularly harsh set of rules in this regard), but that’s purely for those who rely on Medicaid, NOT those who buy health insurance with premium assistance tax credits. In point of fact, the intention of Medicaid is specifically that it would cover those whose income is too low to qualify for premium assistance tax credits in the first place (though not all states have implemented this form of Medicaid expansion).
I’d also like to know how the sale of a home impacts the premium assistance tax credits. We are both retired, but I am 63 and still need private health insurance. We are selling our home of 36 years and hopefully will see some profit from it. How will that profit affect my premium tax credit? Will I have retroactive tax to repay even though the house may not sell until later in the year? This is all a bit much.
Is the maximum % per person? If family of 2 and one has coverage already. There is nothing in application for eligibility that asks how much is already being paid for that person. Also when needing coverage for both in family of 2 it seems determination amount bases maximum % to be paid by individual instead of family (9.5% for each and not for household – so total responsible would be 19% of income before tax credit would be given for that family%)?
With regards to families applying for subsidy… Lets assume that husband has affordable/adequate coverage through his employer, this employer does not provide coverage for spouses. The wife either doesn’t work or works for an employer who doesn’t offer benefits… Is it possible that the wife could apply and get a subsidy? In general, is it possible for someone’s dependents to get a subsidy even if one spouse has access to affordable/adequate coverage?
That’s a great question. The government would expect that the head of household cover the medical. If the head of household had the opportunity to cover a member of the family, that member has to use the work coverage. If they don’t qualify for that work coverage, then they can apply with http://www.healthcare.gov. Make sure they include their spouses income, if asked. If this happens, then their might not be much of a subsidy, however, there are many plans to choose from and there should be affordable options anyway.
If the husband makes less than $33,000 per year, I would try to get the kids on medicaid. Just a suggestion.
MIchael,
This has been so helpful but what can you tell me about how Cobra factors in. I just received a notice from my former employer regarding my Cobra plan and there is some vague language that being eligible for Cobra means I may qualify for a tax credit. What if I want to stay on my Cobra plan and not go through the health exchange? Can I qualify for a tax credit if my income falls in the under 400% range? Appreciate any insight. PS – I reside in NY.
Do yourself a favor and switch if you haven’t paid too much into your deductibles. The plans are pretty good. Just look on the site to be sure you are making the right choice.
Ok Mike, let me ask you this, if I chose to use none of my tax credit towards my insurance premiums. Will I get the tax credit amount as a tax refund? If so will this amount be added to my usual tax refund or will my refund be the same as what I usually get back on my refund?
Sharon,
To the extent you don’t receive the premium assistance tax credit as an advance against your premiums, you will receive it at the end of the year when you file your tax return (either reducing what you owe, or increasing your refund, depending on where you already stood on paying your taxes).
In other words, the fact that you don’t use the tax credit towards your insurance premiums doesn’t matter. The tax credit is the tax credit. The fact that you CAN get it as an advance to use against your insurance premiums is simply a convenience.
The applicant on the HIX has the option of applying all to none of the estimated premium tax credit immediately toward monthly premiums. However, to be eligible for the premium tax credit, one MUST have purchased coverage ON the HIX. It is not as if one can buy a Qualified Health Plan direct from the carrier (exceedingly simple vs the HIX and without broadcasting personal data into the HUB) then expect to be able to claim the credit upon filing 2014 income tax. That is the story from the health insurance carriers, at least.
So if your yearly gross was correct and you used all of the tax credit towards your premium, will that tax credit still be deducted from your refund at the end of the year?
Tyeisha,
The tax credit is being paid to you in advance in the first place.
If your premiums were reduced by a $4,000 credit, and at the end of the year it turns out you were eligible for a $4,000 credit, then you were eligible for $4,000, received $4,000, and there is zero impact at tax season.
The point is just that if you SHOULD have gotten a $5,000 credit and only got $4,000, you’ll get it back when you file your taxes. If you SHOULD have gotten only a $3,000 tax credit and the government ALREADY gave you $4,000, you have to give some/most/all of the excess back.
In other words, you get it now (as premiums are paid). If you don’t take it now, you get it later (when you file your taxes). If you got too much now, you give back the extra later (again when you file your taxes). 🙂
– Michael
Basically, the government is giving a crap ton of money away. Jeepers. 😉
Mr Kitces – in your example above, if I received too much credit, and now have to pay it back ($1500 in additional tax due), can I add that $1500 to my health insurance premiums on Schedule A? (I already have enough other medical expense to reach over 10% of income)
Michael, did you get an answer to this question? Can we add back the $1500 to the itemized deductions? In the year of the original premiums? Or in the following year when the excess is paid back?
I am in a similar situation and would like to know if we can take a medical deduction for the premiums paid back. When they are paid back it means we paid for all of our insurance right? I can’t find anything about this and it doesn’t make sense.
No, you shouldn’t get more back, that makes no sense. IF you already received the credit towards your premium, you’ve gotten the credit, that’s all the wrote. The tax return you do will acknowledge the credit and not charge it to you or credit you again. It will notate the credit.
You have contradicted yourself in your response. It is technically an advance. Yet you call it a convenience. Haha. That’s cute.
Was thinking will this assistance tax credit be any effect according to deductions to our returns and if that happens would we get the turbo tax deluxe coupon benefits that we are used to get in terms to get deductions.
I’m 60 and self-employed. My income varies a lot from year to year, and I don’t need cash as much as I need affordable insurance. Due to pre-existing conditions, current insurance is extremely expensive. My question is, while I would qualify for tax credits that make insurance reasonable, what if my AGI falls unexpectedly (due to loss of an account, purchase of equipment or some new hires to my company) below the 100% FPL line? That would have made me eligible for Medicare, except I live in a state that isn’t expanding it (is it even possible to be retroactively eligible for Medicare?). Do I then have to repay all my tax credits due to unforeseen business events?
Hopefully someone has already replied to this, BUT if your AGI changes, you would report a life change to the Marketplace where you have your account for a plan, and it would adjust your monthly premiums-whether you increase or decrease in income. If you didn’t report it and it wasn’t adjusted during the year, they will reconcile everything when you file taxes. If you income increased, you would probably have to pay some back. If your income decreased, you would probably get more money back on your income tax return. If you went below the income limits for your state, then you might be eligible for state ACA Adult Medicaid. Medicare is thru the federal government for individuals over the age of 65 and/or disabled (for the most part).
kesp, I didn’t report my change of income to Marketplace, My income increased after the first 6 months in 2015 but when filing my taxes via the online tax tools, they are showing that I need to pay back the PTC for all the 12 months in 2015. How can I get this fixed?
Possible if your MAGI exceeded 400% of FPL => NO PTC for you. Sorry.
This question is based on a previous question from : oldnurse • 2 months ago
Does we estimate our 2014 earnings by mid December of this year and use that number? I was told that we are to use our 2012 modified AGI.Michael Kitces Mod oldnurse
Your answere: • 2 months ago
Initially, you use your 2012 modified AGI to estimate your premium assistance tax credit. Ultimately, it will be based on your actual 2014 income as reported on your 2014 tax return (in early 2015); to the extent your actual 2014 income turns out to be different than the based-on-2012-estimate, your tax credit will be adjusted up/down at that time when determining your final tax liability/refund on your return.
Do you know of a way that the credit can be reassessed after taxes have been submitted for 2013. I have been unemployed for most of 2013 so is drematically different than my 2012 income. I won’t be able to “float” my medical premiums for the refund in 2015.
I’m 60 and unemployed. I will have below 100% FPL next year, I suppose (assuming I can’t find employment…I’m looking). My state does not have expanded Medicaid, but I wouldn’t qualify, anyway. So the ACA kicks me out of the insurance market, if I can’t afford the new much higher premiums. BUT, if I make a withdrawal out of my tax-deferred IRA (converted from 401k), to ensure I get to the benchmark for a subsidy, will that work to get me a subsidy? In other words, will IRA withdrawals count toward the AGI (since they will be taxed as income)?
Yes, any *taxable* IRA distribution is counted as income. And a better way to create income from a traditional IRA is to simply do a Roth conversion (the amount can be any part, or all, of any traditional IRA account.) I myself am retired with no other income being generated other than doing a Roth conversion (I had been doing it up the point at which I would start to pay tax – i.e., the 0% bracket.)
Thanks for your explanation regarding the balance portion (after subsidy) of premium deductibility as this is the only place that I could find it. My wife and I pay all our taxes quarterly so estimating our payments accurately is important. Our situation is further complicated as we will reach medicare age in July (me) and August (her) and therefore end the subsidy. The subsidy is 927/month which even for 7 months is probably more than the taxes we owe on all our income. Does that mean we don’t pay quaterly tax (owe nothing) or is the healthcare payment tax credit applicable on to the premium payments and therefore mutually exclusive from the regular income? I’m confused.
Mark,
If you receive premium assistance tax credits up front to cover your premiums, the net effect for you is that nothing changes.
For instance, you pay $2,500 in quarterly estimated taxes. You receive $500/month of premium assistance tax credits.
At the end of the year, you owe $10,000 in taxes (covered by your quarterlies), and were eligible for $6,000 of premium assistance tax credits (which you already received). Net result: you owe nothing (already paid quarterlies), and you’re owed nothing back (already received premium assistance tax credits).
Which means basically, you do nothing differently than what you’re doing now. It’s just that when you pay your health insurance premiums, you’ll get the premium assistance tax credits advanced to you up front so you only pay the net for health insurance. The end-of-year process is only a correction if you were over-paying or under-paying your health insurance (by receiving more or less of the premium assistance tax credits than you should have).
– Michael
Thanks for your reply as that really clarifies how to handle our situation. Since you accepted my assumption that the subsidy is pro-rated due to reaching Medicare age, I assume that there is no problem using that calculation when filing the tax return (of course we will report to healthcare.gov the changes). Correct? Wow, I hope Turbo Tax can handle this!
Mike, If I have until March 31 to sign onto the insurance plan, will I (or the government) be able to factor in that first 3 months (Jan/Feb/Mar.) of benefit into the last 9 months of coverage? Put another way, if I’m eligible for $250 per month in coverage assistance per month, if I don’t sign on until March 31 would I be able to access and use that first 3 months “unused” $750 to bump up to a better plan (of approx. $83 per month) for the following 9 months?
Bill,
The credit is determined monthly and applied on a monthly basis. If you’re eligible for $250/month in coverage assistance, you’ll only get it for the 9 months you have coverage. There is no make-up of credit you might have gotten for coverage earlier in the year but didn’t actually have.
– Michael
I’m still confused about the subsidy’s. I’m Amercian Indian, so I don’t HAVE to take the insurance. However, I’d much rather have a primary dr out if the Indian clinic. The part I’m confused about is they say I have a $2200 subsidy for the year. If all calculations are correct on my income.. Say I get $5,000 back from tax returns.. For 2014 will they deduct the $2200 from my $5,000 return leaving me with $2800 return
Bec,
If you already get back $5,000 as a tax refund, then with the premium assistance tax credit you’ll be eligible for another $2,200. However, since you’ll likely get the $2,200 as premium assistance in advance as your health insurance is paid every month, that means you’ll eligible for $5,000 plus $2,200, you’ll have already gotten $2,200 in advance, which means at tax season you’ll get… the exact same $5,000 you already are getting.
In other words, if you’re getting the premium assistance tax credits up front to help you with your health insurance premiums, the impact at tax season is absolutely nothing. The only thing that happens at tax season is to correct if you got too MUCH or too LITTLE of the credit.
If it turns out you SHOULD have gotten $2,400 but only got $2,200, you’re owed an extra $200. So your tax refund will go up to $5,200. If you SHOULD have gotten only $1,800 but actually got $2,200 (so the government gave you $400 too much), then your tax refund will be reduced to only $4,600 (because you’ll have to repay the extra $400).
I hope that helps a little?
thank you that would have saved me form reading this whole article
Great Article, Michael! I’ve been looking everywhere for this answer. I’m in almost the same situation as Bec26, except I’m not Indian and I’m asking now in 2015…LOL…So this Premium Tax Credit has NO effect on the other tax credits I get (like my regular refund that I receive already for Earned Income Tax Credit & Child Tax Credits), right? Unless, of course, my estimated Premium Tax Credit is over or under paid, in which that difference would end up adding to, or subtracting from my regular refund. Do I have that right?
I’m just wondering if anyone knows…what is the thinking of not making tax credits available for those under 100% of FPL? It seems the poorest people get hit the hardest…I have a family member in this boat…she is not eligible for Medicare, yet is expected to pay more for insurance on the exchange than people making 40k per year…
The original intent of not making the premium assistance tax credits available for those under 100% of FPL is that under the original law, they would all be covered by Medicaid as a part of the mandatory expansion of the program under the Affordable Care Act.
The problem is that the Supreme Court specifically struck down the requirement for Medicaid expansion, and left it optional and up to the states. Those states that chose not to expand Medicaid have now left a “gap” where those under 100% of FPL are not eligible for premium assistance tax credits and may not be eligible for Medicaid either.
– Michael
Mike, let’s say I fall under the 133% FPL and i live in Va, one of those states which will not expand Medicaid in 2014, would I be qualify for the tax credits. Is tax credit the same as the federal subsidy? I was told that I won’t be eligible for subsidy because I live in VA . Thanks- Linh
I believe that the article is inaccurate in that the applicable poverty level is the one that is in effect at the time of the beginning of the sign up – e.g., for year 2014, the applicable poverty level is that in force is that for year 2013. This makes sense as trying to guess what the poverty level for the next year is would be trying to hit moving target.
I had read from an official government document that the tax credit pay back provision only applies if the actual income has *increased* from the proposed income (i.e., the income that is used to determine the tax credit), such that if someone who lives in a non-Medicaid state were to propose an income of 100% of poverty, but wind up with an actual income of less than 100%, he would not be subject to having a tax liability. However, I can’t seem to locate that document, and when I asked for help from the IRS, I was just referred to some IRS documents that don’t specify this. I suppose that I will need to wait until the tax form for 2014 comes out to know for sure – and make sure I have the requisite income (which for me would result in about an extra $135 in income tax) so I could avoid the $300 tax liability.
Can anyone substantiate this?
Increased or decreased. I am 100% certain on that. I read on the site that you can get credit on your tax return if you overestimated. If you received too much, then you will owe more, however, unless a substantial increase just wait until the end of the year.
So what you are saying is that someone who gets the credit corresponding 100% of poverty would have to pay the entire credit back if his income were $1 less than 100% of poverty?
Read what I wrote again.
Elmo receives 200.00 in monthly subsidy credit and only has to pay 18.00 per month for his health insurance. Elmo’s income changes from 12,000.00 per year to 15,000.00 per year. His monthly subsidy credit changes from 200.00 per month to 170.00 per month. Elmo will owe 48.00 for his health insurance per month. If you don’t notify the government of the income change before the end of the year, then the difference will come out of your tax return.
I have a feeling that is not what you are asking, so if I am not responding correctly, please let me know.
You can only receive a premium subsidy up to a certain income. I believe the income is somewhere in the 40,000+ range where it caps out. Don’t quote me on that though.
Poverty is really low and isn’t technically considered lower class, just wanted to make sure you were aware of that.
If you receive a subsidy and you should have been on Medicaid, you would not owe anything… at least you shouldn’t. Medicaid in the state of Nebraska is telling applicants to keep their insurance with healthcare.gov and use their Medicaid IF you are only qualifying temporarily for Medicaid, such as pregnancy. They did not specify if you would have to pay it back if you were getting it for monetary reasons and only monetary reasons. I cannot answer that question. Every single state is different. You would have to tell me which state you reside in, for me to give you the best response. In Nebraska adults cannot get Medicaid unless they are disabled or below the threshold by a mile… meaning they make next to nothing per month in income. Only children or pregnant women qualify if the income is under 30,000.00 ISH (dependent on # in the household).
I highly doubt the government would allow the states to do that if they intended to charge the poor the subsidy instead of taking Medicaid. When I initially applied for Medicaid, I was not qualified. I know there are loopholes, but I have seen nothing that states you have to pay it back if you did in fact qualify for medicaid, because the federal government is automatically sending healthcare.gov applications to your state to make sure you do or don’t qualify, then the state is notifying the government of that response.
Hope that helps.
Thanks.
I am confused about one thing. Will the premium tax credit for insurance count against the earned income tax credit for low income households? I’m worried that this year I won’t get the EITC because I will have received almost the same amount in tax credits already for insurance. Does anyone know the answer to this?
Is the tax credit applicable to the income earned in the year 2014 or 2013? Meaning when I apply my taxes for the year 2014, that is when I will receive any remaining portion of my tax credit or may have to repay any amount (in 2015) that was overpaid to me in the tax year 2014? Thank you.
2014, so if there are discrepancies when you file in 2015 for 2014 you will see an addition or deduction
WHAT IF I AM GETTING A TAX CREDIT AND MY INCOME DROPS BELOW THE POVERTY LEVEL. I WOULD HAVE BEEN ON THE STATE OF FLORIDA MEDICAID IF MY INOCME WAS TOO LOW. DO I HAVE TO PAY IT BACK?
I am going to guess that you might have to, as I cannot find a definitive answer anywhere. Nebraska Medicaid is advising people stay on the health insurance with healthcare.gov and use Medicaid as a secondary. I don’t think they would do that if we would have to pay the subsidies back. A lawsuit against the state of Nebraska would then make Nebraska have to pay it back if you can prove that they said that to you. I don’t think they would be that stupid.
Other than any ‘timing’ issues, is the dollar amount of the advance premium assistance tax credit equal to the year-end refund (if additional credit is due)? What are the required steps for a year-end refund if the taxpayer did not receive, but is ultimately eligible for the advance premium assistance tax credit?
what if you dont have a job? how are you suppose to pay? I’m looking but no luck so far. I can barley afford to eat let alone pay anything. I need help
Apply for medicaid in your state. If you’re above the threshold, then get on http://www.healthcare.gov. If you aren’t making squat, then your subsidy should cover most IF NOT ALL and your deductibles and co-pays should be incredible.
If you dont have a job how are you suppose to pay. I live in Gastiona and cant afford to pay anything right now. I lost my job last yr. PLEASE let me know what to do or how this part works?
Chris, you can see if you are eligible for expanded ACA Adult Medicaid in your state. If not, you could apply for an exemption…https://www.healthcare.gov/exemptions/
have several exemption options/forms you can qualify for, or you can find a local assister to help you.
I have a scenario: I had a deadline from the insurance company to meet before I got the letter from the marketplace about the tax credit I qualified for. As a result, I missed three months of credits being able to be applied. I had to be switched to a marketplace to get the credit applied to the premium. Now I found out that I am eligible for SSI and that they will submit for me to have Medicaid. I don’t know that my state will let me under that though. However, even if I do get submitted under Medicaid, the plans are for me to keep the marketplace plan as my primary insurance since more doctors and medications are covered with it than Medicaid. But how does this impact the tax credit? My state didn’t expand Medicaid. I don’t want to get penalized or do anything wrong, so that’s why I ask. Thanks!
No job. House hold of 4 and can not get medicade because I have money in a IRA THAT i can not touch until I’m 591/2 So what do I do. I no don’t pay taxes then I WANT BE CHARGED
That doesn’t make sense. Re-apply. Do not list the IRA. They cannot keep you from premiums if you cannot claim that IRA as income. Something weird happened there.
When you are above poverty, you make more than poverty. When you are below poverty, you make below poverty. What confuses me is that a lot of you are saying below like there is a below. There isn’t a below… Geez. Below is 0.00.
My current creditable coverage is ending October 31 2014. I have been awarded an annual premium tax credit of $10,212 for my family of 5. I can apply a maxium of $851 ($10,212/12 mo) to lower the monthly premium. What happens to the rest of the premium tax credit? Am I only entitled to 2 months worth of the tax credit since coverage through the Marketplace will only be for two months, or will I be eligible to receive the remaining tax credit amount of $8,510 ($10,212- $1702 [2 mo x $851])
Thank you for this! I have been searching in vain for an actual *amount* of tax credit I may be eligible for, so I can even compare plans with my current individual provider. It’s completely ridiculous that this subterfuge prevents consumers from even making informed decisions. Creeps me out that it may be intentional. :-/
What happens if one’s income for 2014 unexpectedly falls below 100% FPL, yet they signed up for an ACA subsidized plan in 2014?
never mind….found the answer.
http://www.healthreformbeyondthebasics.org/cbpp-webinar-renewals-reconciliation-and-exemptions/
FIRST QUESTION …. Everyone I know plans and pays their monthly bills based on NET SPENDABLE HOUSEHOLD INCOME yet The A.C.A. seems to follow the same unfair Gross Income methodology the housing industry also uses, IN POINT OF FACT, the difference between a Gross Pay and Net Pay amount on a typical weekly paycheck is not chump change and it can make or break a family’s ability to pay bills every month. Of course, “The Industry” claims you can’t use Net Income because some people’s Net could be made artificially lower by; unpaid tax payment recapture orders, civil wage garnishments, unpaid child support payments ….. things like that. Actually it’s all an Industry excuse which can be compensated for and rejected when doing a “fair” tax credit calculation so families will have a real grasp of what they can be able to pay.
SECOND FACT…. The A.C.A. is really screwing people who need the tax credit now that health care premiums shot up from what they were in 2013 and before the mandated coverage features were added. Take a senior couple where one spouse is 60 and in pretty good health and the other spouse is 64 and has some health issues. The both make $21,000 per year for a total of $42,000. BUT UNDER THE A.C.A. they no longer do they have the flexibility to purchase separate policies where one spouse might chose a higher deductible then the other to lower their overall costs. As a couple they will pay $299/mo. with the help of a $664/mo. tax credit by combining their income under the current rules for a policy that has a WHOPPING $6,000 individual yearly deductible, and a out-of-pocket of $6,000/YR. each too. HOWEVER, if they could purchase individual policies based on their individual incomes of $21,000 each annually, they would have a premium of just $94/mo. each based on a tax credit of $411/each. A SAVINGS OF OVER $100 PER MONTH PREMIUM COST. BUT HERS’S THE REALLY INSANITY and here’s were it really gets UNFAIR. Applying as individuals their deductible and out-of-pocket drops to JUST $1,500 because they are treated differently as a couple then as two separate but equal individuals. THINK ABOUT THIS IF YOU ARE A SENIOR….. if one of you gets sick a $6,000 deductible will be a real “heavy lift” to pay, but $1,500 would be a bit more tolerable to pay out. TRY SOME DIFFERENT SCENARIOs ON THE A.C.A. WEBSITE and see for yourself how things change to the benefit of the insurance companies and NOT to “THE PEOPLE”.
I currently qualify for a tax credit of $372/mo based on earned income from my employment. I am also receiving a mandatory dispersion from my deceased father’s IRA which varies but can exceed $300 per month. If this income is reflected on my 2015 taxes, will I be required to pay back most of my tax credit? I did not include the investment income on my application, only current wages from my job.
Jen,
The distributions from the inherited IRA are treated as income, and will be included in calculating your premium assistance tax credit.
However, with $3,600/year of additional income distributions (at $300/month), the impact should only slightly reduce your premium assistance tax credit. It wouldn’t completely eliminate your tax credits unless your income was already within $3,600 of the maximum income threshold, such that this income put you over the line (which per the above chart, is $45,960 for an individual, $62,040 for a married couple, etc.).
So in all likelihood, you’ll just end out being eligible for slightly less of a premium assistance tax credit than what you have been receiving. If you were already getting a refund anyway, you’ll just get a smaller refund. If you weren’t getting a refund and were going to owe something, you may owe a bit more with this.
– Michael
Thank you so much for the information. I feel much better about the situation now. I appreciate the help!
Can someone please help me. According to the health.gov website, what if I was to put I expected to make $25,000 for the year of 2015 and I got a tax credit of $145 to go towards my premium every month. What happens at the end of the year when say I only made 10,000? Do I have to pay something back or get refunded?
Apryl,
In general, if you’re eligible for a premium assistance tax credit based on your income, and it turns out your income is lower than anticipated (so your premium assistance tax credit would have been even larger), whatever you didn’t receive upfront will come to you when you file your tax return (i.e., as a refund or reduction of what you owe).
Notably, though, you do need to reach the minimum income thresholds (100% of FPL) to be eligible for the premium assistance tax credit at all. If you don’t reach that threshold, you may still be eligible for Medicaid, depending on your state.
– Michael
I am looking at getting insurance thru the marketplace. Our income would be at 200% above poverty level but an inherited IRA distribution will put us over 400%. Should this inheritance be counted as part of my Modified AGI? I have been told that it will count against me as I pay taxes on it. Please inform me on how this should be handled.
oops, it will put us at 400%
PLEASE CORROBORATE OR DISPEL MY FINDING BELOW
JUST DISCOVERED
Interesting co-ordination play of APTC with AOTC
(AOTC = $2,500 education credit called American Opportunity Tax Credit available for 4 years of undergrad ; made up of $1,500 non-cashable tax credit and $1,000 cashable portions).
An excessive APTC that needs to be paid back at tax-filing time, apparently can get offset through the otherwise usually unused non-cashable $1,500 tax credit portion of the AOTC..
Therefore students should definitely ‘arrange’ for the largest APTC possible upfront; they may or may not have to physically pay it back later. Better to not pay out-of-pocket upfront and see later if the recapture gets nullified by AOTC non-cashable tax credit.
SO, you lose by paying the health premiums upfront.
Can anyone confirm this?
Any other similar credits available?
Most undergrad students can’t generate a tax liability of $1,500 and have to forgo the $1,500 tax credit available to them.
On a different note, most families phase out of AOTC, so cut the student loose, which is possible only if he/she has enough earned income; then have them file as a single independent with very low income and watch the AOTC roll in, along with APTC maximization!!!!
if income changes mid-year and we report it to healthcare.gov, will they let us switch plans and insurers accordingly so that a different policy is now covering us ? what happens to deductibles already met etc
is my son eligible for marketplave.gov provided health insurance coverage under the following scenario?
he is a 20-yr old college student
single tax filer
independent filer
earns summer income
can’t be
claimed a dependent on our taxes
provides more than 1/2 of his own support.
no workplace insurance
optional insurance through college, available to all students.
dad’s workplace provides health insurance with the option of adding family members…..employee can add spouse or spouse and kids .
mom not working
we chose not to add son to dad’s workplace insurance policy
is my son eligible for APTC through marketplace.gov IF:
-son is 20 years old; college student; earns income during summer internships
-no workplace insurance during summer
– optional insurance through college available to all students; has to pay 100% on his own
– independent filer , single filer for tax return
-not claimable as a dependent on parents’ tax return
– provides more than half his own support through summer jobs and scholarships
-dad’s workplace health insurance offers option to add spouse and family members
– mom not working
– parents chose to not add son to workplace policy
?
we are currently on husband’s workplace health insurance policy. open enrollment period is aug-sep and the new policy begins in october. so i can’t even get on to the marketplace policies because their open enrollment period begins in nov. workplace insurance (trinet) wont let me close their policy in nov after enrolling through marketplace. so what do i do in between sep- oct?
Here’s a question I can’t seem to find the answer to. I was overpaid subsidies because of a change in income. Now that I have to pay them back when I file my taxes, can I deduct the entire premium amount as medical expenses subject to the 10% rule?
Sarah, did you ever get an answer to this question??
I am 62 year old female on disability as of August 2014. I am enrolled in the “ObamaCare”, 2014 and 2015. My husband passed away January 2015 and had $15,000 policy and $100,000.00 policy. Do I have to report this as income? Will I still be eligible for insurance that I have? My disability check is only $975.00 month.
Presuming that the $15,000 and $100,000 “policies” are life insurance policies, there’s no impact here. Life insurance death benefits are not treated as taxable income, and do not affect eligibility for premium assistance tax credits.
– Michael
Hi I was approved for the aptc does that mean they will take it out of my tax returns to pay it back. So its kinda like a loan until tax season am I wrong.
Ashley,
No, if you were eligible for the premium assistance tax credit and already got it upfront as a credit against your health insurance premiums that’s it. Your reporting of the credit on your tax forms is just to confirm that you already received the correct amount.
If you got TOO MUCH up front, you may need to repay some or all of it when you file your tax return. If the amount was accurate in the first place, you owe nothing. If it turns out you didn’t get enough, whatever is still owed to you will come when you file.
– Michael
What happens if your yearly income drops below the $11,670.00 for subsidies and you have already received your healthcare subsidies for 2015?
I’m 32 years old, a full-time student, and my husband is self employeed. We have 3 children at home, and they are on state insurance because I was unable to add them to the ObamaCare insurance (was advised I couldn’t enroll them because our income was too low). I enrolled in ObamaCare for 2014 for my husband and myself, and estimated our income at $27,000 (the lowest allowed to get a subsidy). Our income for 2014 was $18,000 after taxes and self-employment deductions. I have spoken with Marketplace representatives for hours trying to figure out if I will get penalized because I over estimated our income, and technically shouldn’t have gotten the subsidy. I was told my numerous reps that the only way to get penalized is to under estimate and make too much to not qualify. I just spoke to my tax attorney and she advised that she entered the information into the system for the marketplace insurance, and it came back that there was no penalty since I was technically exempt because our income was low enough for it to not be required. I’m torn as to whether or not I should take insurance for this year, although our income will be higher, because I don’t know if it will fall under the $27,000 mark. I live in Kansas and there are no other insurance programs available for adults, including Medicare. My tax attorney advised that if I wasn’t penalized for 2014, I shouldn’t be penalized this year. I just don’t want it to come back on me and have to repay all of the subsidies because it slipped through the cracks for a period. Does anyone have any insight into this scenario or a similar situation? Any help would be appreciated!
I am a Tax Associate working with a client, who from January to June, received The Marketplace ins until the age of 65 when he was eligible for Medicare. After his Medicare went into affect, he cashed in his IRA. With that distribution, it was added in as receiving it on January 1, including as income for the whole year. Is there an exclusion for that income considering the fact that he received it after enrolling in Medicare to be exempt from the penalty of tax credit premiums being imposed on this taxpayer? Those members who have planned all their lives for retirement definitely didn’t plan on Obamacare, they shouldn’t be penalized for cashing it in after the fact. Is there any new regulation to cover this exclusion? Thank you.
Thank you for this detailed analysis and discussion of the new tax law.
Does the ACA benefit ‘phase-out’ for MAGIs above 400% of FPL? Or does it fall off a cliff?
Using some of the online calculators that are out there it appears that my wife and I can receive a PATC of about 10K with a MAGI of 62K, but the PATC falls abruptly to zero if our MAGI increases to 63K!
I am self employed, and I’m trying to figure out if I should earn that next thousand dollars?
Thanks in advance for your insight.
Spencer,
Unfortunately, the threshold is indeed a cliff. If you’re over the 400%-of-FPL line at all, the credit goes immediately to zero.
It can be a very harsh cliff. 🙁
– Michael
Cliffs can indeed be very dangerous!!….thank you Michael.
Perhaps you can enlighten me as to a related aspect of the new law. Self-employed individuals can deduct the full amount of their health insurance premium on 1040 line 29. If one hasn’t ‘fallen off the cliff’ (i.e. exceeded 400% of FPL) this premium may now be partially reduced by PATC payments throughout the year.
For instance, the full premium for insurance may be $15k annually. Buying though a qualified plan on a state exchange, the premiums were partially offset by a $10K government PATC subsidy, yielding actual out-of-pocket payments of $5K.
So which amount would be entered on line 29 when filling taxes: $15K or $5K?
The answer of course effects MAGI, so it appears to be a recursive problem!?
This question is further complicated by the fact that one reconciles these amounts after the end of the year. For instance, the full $10K subsidy might have to be returned if self employment income exceeds 400% of FPL? Would this then effect MAGI for the following year?
Thanks again, and in advance, for shedding light on these dark corners of the ACA law!
I filed taxes and my total income came to $11038 and documents showed that I don’t have any refund. But I have my form 1095 and my return supposed to be $1224 and information from form was entered when taxes filed. What do I do to get my tax return?
I did not use any credit to pay for insurance so I assume I supposed to get the refund
Please help
I am head of household of 3. My children were on state health insurance plan which I paid for. I was on Obamacare. My income is below household of 3 BUT my income is being based on household of 1 since I was the only one on it so I had to pay subsidy back? Is that right?
I am self-employed and so can deduct medical insurance premiums. My income is low so I qualified for tax credits on my medical insurance in 2014. I underestimated 2014 income, and so will have to pay back some of the credits I received. My question is, can I deduct the amount I paid back in 2015? It seems to me that I should be able to, since those paid-back credits are actually medical insurance premiums, just deferred one year. This question seems to have been raised here a couple of times, but so far I haven’t found a response. I appreciate any possible help. Thank you,
John
I received advance payments for January through June which I was qualified for. I received a good sized
IRA distribution later in the year which would have made me not be able to get as much, but by that time I had already quit carrying insurance through the marketplace anyway. Am I going to have to repay those advanced payments? I have not been able to find out anything about being able to work around that. All I find is stuff about total income for the year but not anything about how to treat it if you actually qualified at the time you received them.
We went over the “cliff” as you call it since we took out IRA monies which brought our income above what is allowed for 2 in the family. However in the early 2016 our daughter moved home at 24 and is going back to school in 2016. We are advised she is not a dependent and cannot allow the household to be 3 people for purposes of determining eligibility. Is it possible she will be incuded in household for eligibility in 2016?
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What I can not find is why only marketplace plans qualify I am on SSDI and pay 10% of that income to Medicaid as premiums. I am wondering why they did not include all health care premiums. The rest of my family pays $425 a month in premiums to keep Tricare Prime
If I receive advance credit (APC) payments and my actual allowable credit on the return is less than the advance credit payments, I understand the difference will be either subtracted from any refund or added to my balance due. But if I have no refund or balance due as my tax bracket is zero, will I still have to repay the APC?