We have been fielding a ton of questions on the effect of the new Affordable Care Act so I thought I would do a few blogs on this to give you a bit of background on this very complex law. First let’s start with the Tax Credit for purchasing health insurance.
The premium tax credit can help make purchasing health insurance coverage more affordable for people with moderate incomes. To be eligible for the credit, you generally need to satisfy three rules.
First, you need to get your health insurance coverage through the Health Insurance Marketplace. The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace runs from October 1, 2013 through March 31, 2014.
Second, you need to have household income between one and four times the federal poverty line. For a family of four for tax year 2014, that means income from $23,550 to $94,200.
Third, you can’t be eligible for other coverage, such as Medicare, Medicaid, or sufficiently generous employer-sponsored coverage.
If a Marketplace determines that you’re likely to qualify for the tax credit at the time you enroll, you have two choices: 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, you can wait to get all of the credit when you file your 2014 tax return in 2015.
If you wait to get the credit, it will either increase your refund or lower your balance due.
If you choose to receive the credit in advance, changes in your income or family size will affect the credit that you are eligible to receive. If the credit on your tax return you file in 2015 does not match the amount you have received in advance, you will have to repay any excess advance payment, or you may get a larger refund if you are entitled to more. It is important to tell your Marketplace about changes in your income or family size as they happen during 2014 because these changes will affect the amount of your credit.
Clear as mud right? If you think the credit applies to your specific tax situation feel free to give us a call and we can run the numbers. My next blog will be on how the administration will pay for this Act…at least in part…through various tax hikes on higher income taxpayers.