We’ve talked a lot about the Affordable Care Act and how it will impact your taxes, as well as advice for getting your health insurance. But now comes the big question: How will you pay for coverage? For many families, there is a new Premium Tax Credit specifically designed to help reduce, or even eliminate, your cost of health insurance if you meet certain criteria. Perhaps one of the best things about the new Premium Tax Credit is the option to have the Treasury Department pay your insurance carrier with a portion of your estimated 2014 credit each month – so unlike credits where you get the benefit when you do your taxes at the end of the year, you can use this credit during the year you earn it. Read more about this option below.
Qualifying for the Premium Tax Credit
Before you decide how to use it, you need to figure out if you qualify for the credit. In a nutshell, the qualifications are:
- You must not be eligible for any government provided health insurance such as Medicaid, Medicare Part A, CHIP, or TRICARE or employer provided insurance.
- Your income must be within a certain range based on the size of your household.
- You must qualify for, and purchase, an insurance policy from the Health Insurance Marketplace.
You will automatically have your potential credit determined by the Health Insurance Marketplace when you apply for insurance. To complete your application you will need to provide your expected total income for the year, the number of dependents and your filing status, plus the expected income for any dependents you plan to claim.
The Marketplace will help you determine the insurance cost, estimate the credit, and decide if you want to request the advanced credit feature.
Get your credit in advance or wait until next year’s taxes?
As mentioned above, when you shop for your insurance this year on the Marketplace, you will have two choices if you qualify for the credit: Get the credit in advance and use it to pay for this year’s insurance, or wait to claim it when you file next year’s taxes.
If you choose to get your credit in advance: You can decide if you want the credit sent to you, or you can have the Treasury Department send it directly to the insurance company you choose. You will need to pay any additional monthly premium costs above the amount provided by the credit.
Important notes: If your income or family size changes during the year, make sure to notify the Marketplace. If you underestimate your income or overestimate your family size, you can be subject to a repayment of any excess credit you received during the year. Alternatively, if you overestimate your income or underestimate your family size you could be eligible for additional credit possibly increasing your refund. You must file a tax return next year to determine how much your 2014 credit actually was.
If you choose NOT to get the credit in advance:
If you decide not to take the advanced payment, you must pay your full premium amount each month and claim the credit when you file your taxes the next year.
Not sure which option is best for you? We stand ready to help. For help understanding ACA and any tax questions or concerns, contact your local Jackson Hewitt Tax Pro.