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Obamacare and the Premium Tax Credit

TaxAlerts Tax Article

October 2013 | Written by: Karen Reed, EA

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You may be eligible for a Premium Tax Credit (also known as a premium subsidy) next year if you purchase your health insurance through the Health Insurance Marketplace. To be eligible you are required to file jointly with your spouse if you are married (married taxpayers who use the Married Filing Separately status are not eligible for the Premium Tax Credit under the current regulations), and you cannot be a dependent of another taxpayer.

The credit was designed to help make insurance coverage more affordable for those with low and moderate incomes, and, generally, your income must be less than four times the federal poverty level to qualify for a credit. The federal poverty level varies by household size. As an example, the poverty level for a family of three in the contiguous United States for 2013-14 is $19,530.

If your employer offers health insurance that meets certain requirements, or if you are eligible for government sponsored medical insurance, such as Medicare or Medicaid, generally you will not be eligible for subsidized coverage through the health insurance exchange unless your income is between one and four times the federal poverty level and you pay more than 9.5% of your household income for the coverage offered by your employer.

Here are some examples of how the credit applies to a family of three – two adults and one child – at three different income levels, based on the U.S. average*:

ANNUAL INCOME

ANNUAL PREMIUM AMOUNT

SUBSIDY/TAX CREDIT AMOUNT

MONTHLY PREMIUM

$100,000

$6,680

0

$557

$50,000

$6,680

$2,568

$343

$25,000

$6,680

$6,180

$42

You can have your credit applied to your insurance when you purchase it through the exchange, or you can get it as a tax credit when you file your 2014 income tax return in 2015. In either case, the amount of the credit you receive is calculated and reported on your tax return.

Open enrollment begins on October 1, 2013, at healthcare.gov. Use a subsidy calculator to estimate the amount of your premium tax credit or subsidy.

*Figures based on Kaiser Family Foundation Subsidy Calculator results.