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The Health Insurance Premium Tax Credit was designed to help low-income Americans pay for insurance – but, if you’re not careful, you could end up owing money at tax time .
Refundable credit is available to any individual or household who obtains a health insurance policy through any of the healthcare exchanges set up under the Patient Protection and Affordable Care Act, commonly known as Obamacare.
Intended to help people who are not insured under an employer-sponsored plan, anyone earning less than 400% of the official federal poverty line is eligible for the credit. By the end of 2019, 11.41 million people had purchased insurance from one of the health insurance exchanges, according to data from the Kaiser Family Foundation. Of these, 8,515,524 people received total annual credits of $ 52.3 billion, with the average monthly credit being $ 512 per person.
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The eligible credit for any person depends on their income, place of residence and the size of their household. The less money you earn and the larger your family, the better your credit will be. For 2021, the federal poverty level is $ 12,280 for singles and $ 26,500 for a family of four living in one of the 48 contiguous states or in the District of Columbia. It is $ 33,130 for a family of four living in Alaska and $ 30,480 for a family in Hawaii.
“It’s a little surprising how much money you can earn while still being eligible for credit,” said Tom Gibson, a CPA from Vero Beach, Fla., With Tax Savings Professionals. Based on the poverty line of $ 25,750 for 2019, a family of four earning up to $ 103,000 was eligible for the credit. The monthly premium for a silver plan purchased on the Florida Health Insurance Stock Exchange was $ 1,380.
Gibson calculated that a family living on the poverty line that year would receive a monthly credit of $ 1,336 and incur a cost of $ 44 per month. A family at 390% of the threshold would receive a credit of $ 575 and be responsible for covering $ 805 of the monthly premium.
People eligible for the credit can receive the full annual amount at the end of the year, reducing taxes owed or increasing their repayments. However, when people enroll in the plan, most arrange for the credit to be applied up front on their monthly premiums due.
While advance payments are fine for plan members, they can dramatically change your ultimate tax obligations if your circumstances change during the year.
“If you have a raise, or maybe your spouse has a part-time job or a dependent has left the household, it impacts how much credit you are entitled to,” Gibson said. . “If advance payments were applied to your premiums, you could end up owing at the end of the year.”
On the flip side, if you had a child last year, been laid off, or saw your income drop – a big possibility for many low-income Americans last year – you may be eligible for a additional credit on your tax return this year.
Either way, if you don’t like surprises when it comes to tax filing, it pays to promptly report any changes to your income and family circumstances to make sure your advance payments accurately reflect. your life profile. All updates can be made through an account on the HealthCare.gov website, over the phone with your market call center, or in person.
If you have received advance credit payments throughout the year, you must reconcile the amounts to what you ultimately qualify for by completing Form 8962 with your tax return.
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