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What is a tax subsidy for health insurance?

Keep in mind...
  • If you purchase a healthcare plan on the insurance marketplace, you may be eligible for a tax subsidy, also known as a premium tax credit
  • You can use the credits as an advance towards your insurance payments to help lower your monthly premium
  • You can also choose to claim the tax credit as a refund when you file your federal tax returns
  • If your estimated annual income falls between 100 and 400 percent of the federal poverty level, you will qualify for a premium tax credit
  • You may also qualify for cost-sharing reductions, which are savings on your out of pocket costs, in addition to the premium tax credits
  • If your income is too high for subsidies, you can still purchase a plan on or off the marketplace
  • You can also appeal a marketplace decision if you believe it is incorrect

What is a tax subsidy for health insurance?

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A health insurance tax subsidy, also known as a premium tax credit, can help lower your health insurance costs by reducing the amount you have to contribute towards your monthly premium. When you fill out an application on the healthcare.gov website, it will let you know if you qualify for premium tax credits based on your estimated income and the number of people in your household.

It will also let you know if you qualify for low-cost or free health insurance options, such as Medicaid and the Children’s Health Insurance Program. Although you can purchase an insurance plan through other sources, such as a private company or an insurance broker, getting a Marketplace plan is the only way qualify for these subsidies.

Not everyone will receive the same size tax credit. The lower your income is, the larger your subsidy will be. It is based off an estimated amount so if your income or household size changes, you should notify the Marketplace immediately so they can make adjustments that will more accurately reflect your income and family size.

You should also notify them if other changes take place in your life, such as a marriage, divorce, or birth of a child. These can all affect your premium credit amount.

How does it work?

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If the Marketplace notifies you that you are eligible for a tax credit, you have a few options. You can choose to use the credit as an advance towards your health insurance premium which will help lower your monthly bill. You can also choose to receive it as a refund when you file your tax returns. You can even do both and put a portion towards your premium and get the rest when you file your taxes.

When you apply for coverage, the Marketplace will give you a tax credit estimate based on the information you provided. Whether you choose to apply the credit to your premium in advance or have it paid to you at once, you will have to fill out the premium tax credit Form 8962.

When you file your taxes, if it turns out that you used more of the advanced tax credit than you qualified for based on your final income, you must repay that amount. If it turns out you were eligible for more tax credit than you used towards your premium, you will get that money back as a refundable credit.

How do I know if I’m eligible?

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If your income is between 100 and 400 percent of the federal poverty level, you will most likely qualify for a premium tax credit. In 2016, this amount is between $11,770 and $47,080 for an individual, between $15,930 and $63,720 for a family of two, and between $24,250 and $97,000 for a family of four.

These income brackets only apply to those living in the 48 continental United States and Washington DC. There are two separate tables each for Alaska residents and Hawaii residents. If you are close to the 400 percent limit, you should carefully consider your options. Remember that if your final income winds up being over the limit, you will have to pay all of the advance credit amount back.

There are other factors that contribute to eligibility, in addition to income. These can include the size of your family, where you live, and the available insurance options in the area you live in. If you are married but you and your spouse file two separate tax returns, you will not be eligible for tax credits unless you meet certain criteria.

What are cost-sharing reductions?

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In addition to premium tax credits, you may be eligible for additional savings known as cost-sharing reductions. These reductions save you money on your out of pocket expenses, as opposed to your monthly premiums.

You can only qualify for cost-sharing reductions if you purchase a silver plan on the Healthcare Marketplace. However, you can get premium tax credits on any “metal tier” plan, whether it’s bronze, silver, or platinum. A silver plan has a higher monthly premium than a bronze plan but if you qualify for both tax credits and cost-sharing reductions, your might save more money on your overall healthcare costs with a silver plan. Additionally, your deductible will typically be lower with a silver plan so your coverage will kick in sooner.

With cost-sharing reductions, you’ll pay a lower deductible. A plan with a $1,000 deductible may only cost $700 with your savings. You may also have lower co-payments and lower out of pocket maximum limits.

If you are Native American or an Alaskan Native, you may be eligible for additional tax credits and cost-sharing reductions. If your income is between $24,750 and $72,750 for a family of four and you meet the requirements for tax credits, you can enroll in a zero cost sharing plan, which means you will not pay any deductibles, copayments, or coinsurance when you are receiving medical services.

What are my options if my income is too high?

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If your income is too high to qualify for any of these savings, you can still enroll in a marketplace plan. In this case, however, you should shop around in case you find a plan that is cheaper directly from the insurance company. You can contact the insurance company and find out what plans are available in your area and are affordable to you. Many websites have plan comparisons that you can look through. You can also purchase a plan through an online health insurance seller.

You can also go through an insurance broker. You do not have to pay a broker personally because they are typically paid by the insurance companies whose policies they sell. They can help you compare available plans, often from different companies, and enroll in the one that works best for you. Brokers may not have access to all of the plans that are available on the healthcare exchange marketplace.

Can I appeal a marketplace decision?

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You can appeal a Marketplace decision on your savings eligibility if you feel that it was inaccurate for any reason. Specifically, you can appeal a decision on your eligibility for low costs based on your income, the amount of savings that you are eligible for, and a change in the amount of savings.

Additionally, you can appeal a decision about enrolling outside of the open enrollment period, about your eligibility for Medicaid or CHIP, and on whether or not you can enroll in a catastrophic plan. You can also appeal a decision on whether or not you are exempt from the individual mandate, which is the penalty fine you have to pay if you do not have health insurance.

After you file an appeal, you should be contacted by mail about the decision within 90 days of your request. This letter will tell you that your request for an appeal was received, will give you an extensive description of the process that will follow your appeal request, and will give you instructions about sending any additional material.

You may be asked to send additional identification, such as your passport, to help push the appeal process along. If necessary, you can request a copy of your appeal record so you have proof of all your appeals and requests.

Find a Plan that Pays You Back

The health insurance tax subsidy, also known as the premium tax credit, helps those with low to moderate incomes afford their monthly health insurance premium. You can apply the credit as an advance directly towards your monthly premium or as a refund when you file your taxes.

Either way, you will have to fill out the premium credit tax form. If you qualify for the premium credit, you may be eligible for additional savings on your out-of-pocket expenses, known as cost-sharing reductions. If your income is too high for savings, you can still purchase a Marketplace plan.

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