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By Ryan Kennelly

August 26, 2016

Topics:

  • Individual & Family Health Insurance
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What is the Advanced Premium Tax Credit and How Does it Work?

August 26, 2016

  • Individual & Family Health Insurance

Because of the Affordable Care Act, many people who buy their own health insurance can get financial assistance that lowers your costs. This assistance is called a subsidy. There are two kinds of subsidies: the Advanced Premium Tax Credit and Cost Sharing Reduction.

The Advanced Premium Tax Credit goes toward your health insurance premiumwhat you pay each month to maintain your health coverage. You can apply it to our bronze, silver, gold and platinum plans. Here’s what else you need to know about the premium tax credit.

Who is Eligible?

If you can answer yes to all these question, you may be eligible for the premium tax credit.

  • My household income is 100 to 400 percent above the Federal Poverty Level. Most people in this range will be eligible, but not everyone. See note below.
  • My employer doesn’t offer health insurance that costs less than 9.5 percent of my income and pays at least 60 percent of covered benefits.
  • I’m not eligible for health insurance through a government program like Medicaid or Medicare.
  • I’m married and file a joint return.
  • I’m not claimed as a dependent by another person.

Note: Not everyone with an income under 400 percent of the Federal Poverty Level will qualify for a premium tax credit. That’s because it’s based on your income relative to:

  • The cost of the second lowest-priced silver plan in your county
  • The size of your family and the age of family members

Here’s an example. Two couples living in the same county both have an income that is 375 percent above the Federal Poverty Level. One couple is in their 30s, the other couple is in their 50s. Because older people pay higher premiums, the older couple may qualify for a tax credit. The young couple may not, even though their income is the same.

 How Does It Work?

To get your tax credit, you’ll first need to fill out an application on the Health Insurance Marketplace. Then you’ll get an estimate of the amount of credit you can claim for the coming year. The amount of credit you can get is based on:

  • Your family size
  • Your estimate of your household income for the coming year
  • The average price of plans in your area for a family similar to yours

The larger your family and the lower your income, the more credit you may be eligible for.

Then, you’ll decide how to use your credit. This subsidy is called the Advanced Premium Tax Credit because you can choose to have all or some of it paid in advance toward your premium. The Marketplace notifies your insurance company about your credit, and reimburses them. Your insurance company applies the credit to your premium each month, so your payments are lower.

You can also wait to claim your credit when you file your tax return for the year you were covered by your plan. If you only applied part of it to your premium, you can claim the unused portion when you file, too. It’s the difference between getting the credit as a lump sum, or paying less in premiums each month. It’s up to you.

How Does Changes to my Income Affect My Credit?

Because it’s based on your family size and income, your Advanced Premium Tax Credit changes as your life changes during a year. Events that affect the amount include:

  • Increases or decreases in your household income
  • Marriage
  • Divorce
  • Birth or adoption of a child
  • Becoming eligible or ineligible for health insurance through an employer or government program

Did you choose to have some or all of your credit applied in advance to your monthly premium? You should notify the Health Insurance Marketplace about any of these changes. They’ll update the information first used to determine your premium tax credit. Then they’ll adjust your advance payment amount.

What Happens When It’s Time to File my Taxes?

Tip: Using your Advanced Premium Tax Credit will be easiest if:

  • Your family is all on one health insurance plan
  • You file one tax return for the whole family

If this scenario doesn’t apply to you, it’s a good idea to get advice from a legal or tax professional.

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