Q&A: Obamacare Tax Credit

What is the “premium tax credit,” and who qualifies for it?

I have heard of something called the “premium tax credit” that was authorized by Obamacare. What is this credit, and who qualifies?
Beginning in 2014, if you get your health insurance coverage through the Health Insurance Marketplace (also known as the “exchanges”) you may be eligible for the premium tax credit. This credit can help make purchasing health insurance coverage more affordable for people with moderate incomes. The open enrollment period to purchase health insurance coverage for 2014 through the Marketplace runs from October 1, 2013 through March 31, 2014.

You may be eligible for the credit if you meet all of the following:

  • buy health insurance through the Marketplace;
  • are ineligible for coverage through an employer or government plan;
  • are within certain income limits (see below);
  • file a joint return, if married; and
  • cannot be claimed as a dependent by another person.
What are the income limits? In general, individuals and families whose household income for the year is between 100 percent and 400 percent of the federal poverty line would qualify for the premium tax credit. The following illustrates when household income would meet these levels:
  • $11,490 (100%) up to $45,960 (400%) for one individual.
  • $15,510 (100%) up to $62,040 (400%) for a family of two.
  • $23,550 (100%) up to $94,200 (400%) for a family of four.
For purposes of the premium tax credit, your household income is your modified adjusted gross income plus that of every other individual in your family for whom you can properly claim a personal exemption deduction and who is required to file a federal income tax return. Modified adjusted gross income is the adjusted gross income on your federal income tax return plus any excluded foreign income, nontaxable Social Security benefits (including tier 1 railroad retirement benefits), and tax-exempt interest received or accrued during the taxable year. It does not include Supplemental Security Income (SSI).
If you are eligible for the credit, you can choose to:
  • Have some or all of the estimated credit paid in advance directly to your insurance company to lower what you pay out-of-pocket for your monthly premiums during 2014; or
  • wait to get all of the credit when you file your 2014 tax return in 2015.
To qualify for the credit, you must get insurance through the Marketplace. During enrollment through the Marketplace, using information you provide about your projected income and family composition for 2014, the Marketplace will estimate the amount of the credit you will be able to claim for the 2014 tax year that you will file in 2015. You will then decide whether you want to have all, some, or none of your estimated credit paid in advance directly to your insurance company.
Report income and family size changes to the Marketplace throughout the year. Reporting changes will help make sure you get the proper type and amount of financial assistance and will help you avoid getting too much or too little in advance.

Tip. More detailed information about the credit is available in IRS Publication 5120 (“Facts about the Premium Tax Credit”), available on the IRS website, irs.gov.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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