03 Jun

Need Health Insurance But Not Eligible for Medicare?

June 03, 2016

You may be able to receive subsidies from the government for your health insurance premiums. In order to make health insurance more affordable, the Affordable Care Act allows eligible individuals to receive a premium tax credit if they obtain health insurance through the Marketplace.

The Marketplace is a health care exchange that was established by the government under the Affordable Care Act and is also referred to as “Obamacare.” It was signed into law March 23, 2010. This legislation requires all individuals to have health insurance coverage. There are minimum essential coverage requirements that must be met in order to avoid penalties (in the form of taxes). If you are not eligible for Medicare (age 65) and you need health insurance, this might be an option for you.

If eligible for the credit, you can choose to have the subsidy applied to your monthly insurance premiums, or you can have a credit applied to your tax return (to either lower your tax due or increase your tax refund). If you choose the former, the government sends the subsidy directly to your health insurance provider, reducing your monthly premiums.

Premium subsidy eligibility is based on your household’s adjusted gross income (AGI), which includes capital gains, interest and dividends, Roth conversions, tax-exempt income (including Social Security), and any deductions on page 1 of your tax return (1040). The amount of the credit is based on the percentage of your income above the poverty line. The credit is completely phased out once your income is more than 400% of the poverty line.

For example, in 2015 the Federal Poverty Line was $15,930 for a family/household of 2. This means if you had AGI of $40,000, your income would be 251% above the poverty line and you would be eligible for the health insurance credit. Once your income reaches more than $63,720, you are no longer eligible for the credit.

When you apply for health insurance through the Marketplace, you will need to estimate your household income for the year. If you choose to receive the credit on a monthly basis to reduce your out-of-pocket cost of insurance premiums, be aware that you may need to pay some of the credit back if your tax return shows a higher amount of income.

When filing your taxes you are required to reconcile what you have received in subsidies with what you should have received, based on your AGI. If your income fluctuates from year to year, it may be best to over-estimate your income when applying for health insurance. This can help avoid an unexpected additional “tax” on your tax return. If something changes throughout the year or you have a better estimate of what your income will be, make sure to report those updates to the Marketplace (this can be done online, by phone, or in person).

Sources:

https://www.healthcare.gov/reporting-changes/how-to-report-changes/

https://www.healthcare.gov/income-and-household-information/income/

https://aspe.hhs.gov/2015-poverty-guidelines

Not intended as tax or legal advice. For educational purposes only.

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