How Income Affects The Premium Tax Credit
The IRS has issued advice to help individuals understand how their household income can affect the Affordable Care Act premium tax credit they may receive on health insurance policies purchased through a state or federal marketplace:
Individuals are allowed a premium tax credit only for health insurance coverage they purchase through the Marketplace for themselves or members of their family. However, to be eligible for the premium tax credit, the household income must be at least 100%, but no more than 400%, of the federal poverty line for the family size.
An individual who meets these income requirements must also meet other eligibility criteria.
For example, if the individual has a household income between 100 percent and 400 percent of the federal poverty line, but is eligible for coverage through his/her state’s Medicaid program (for example, because his/her state provides Medicaid to individuals with household income up to 133 percent of the federal poverty line), such individual will not be eligible for the premium tax credit.
The amount of the premium tax credit is calculated on a sliding scale, with greater credit amounts available to those with lower incomes.
Based on the estimate from the Marketplace, each individual can choose to have all, some, or none of their estimated credit paid in advance directly to the insurance company on their behalf to lower what they pay out-of-pocket in monthly premiums.
If an individual does not get advance credit payments, he or she is responsible for paying the full monthly premium.
If the advance credit payments are more than the allowed premium tax credit, the insured will have to repay some or all the excess.
If the projected household income is close to the 400% upper limit, the IRS cautions taxpayers to consider a number of advance credit payments they choose to have paid on their behalf.
This is because if household income on the individual’s tax return is 400% or more of the federal poverty line for that family size, the taxpayer will have to repay all of the advance credit payments made on behalf of the individual and his or her family members.
For purposes of claiming the premium tax credit for 2014 for residents of the 48 contiguous states or Washington, D.C., the following table outlines household income that is at least 100% but no more than 400% of the federal poverty line:
Federal Poverty Line (FPL) for 2014 Returns | |||
| 100% of FPL | 400% of FPL | ||
| One Individual | $11,490 | up to | $45,960 |
| Family of two | $15,510 | up to | $62,040 |
| Family of four | $23,550 | up to | $94,200 |
The Department of Health and Human Services provides three federal poverty guidelines: one for residents of the 48 contiguous states and Washington D.C., one for those living in Alaska, and one for residents of Hawaii.
For purposes of the premium tax credit, eligibility for a given year is based on the most recently published set of poverty guidelines at the time of the first day of the annual open enrollment period for coverage for that year. Thus the premium tax credit for 2014 is based on the guidelines published in 2013, and the premium tax credit for coverage in 2015 is based on the 2014 guidelines.
An Interactive Tax Assistant tool can be used to find out if a taxpayer is eligible for the premium tax credit.
For more information, see the instructions to Form 8962 and the Questions and Answers on the Premium Tax Credit on IRS.gov/aca.
To learn more about ACA compliance in 2020, click here.
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