Getting Help Paying for Health Insurance Premiums
After you search the health insurance marketplace for your ideal health insurance plan, the Affordable Care Act may help pay your premiums. The ACA provides financial help to people with low to moderate incomes. Specifically, the Premium Tax Credit helps pay your health insurance premiums, either directly to the insurance companies or as a lump sum to you when you file your taxes.
Premium Tax Credit
What is the Premium Tax Credit? If you have a low to moderate income, the Premium Tax Credit can help you pay your health insurance premiums. The credit is the difference between the most affordable premium for you and the second lowest cost Silver plan available to you through the health insurance marketplace. The affordable premium is calculated by multiplying your household income by a percentage, based on where your household income falls between 100% and 400% of the federal poverty line.
Who’s eligible for the credit? To be eligible:
- You must buy coverage through the federal or your state’s marketplace.
- You must not be eligible for affordable coverage through employer-sponsored insurance, Medicaid, or any other government health benefits.
- Your household’s income must be between 100% and 400% of the federal poverty level.
- You can’t file as married filing separately.
- You can’t be claimed as a dependent by another person.
When can you claim the credit? You can either claim the credit when you buy the insurance or when you file your taxes. If you need help paying the premiums during the year, you can apply to receive a subsidy (sort of a grant) in the form of the Advance Premium Tax Credit. The credit is based on your estimated income for the year, so you can claim it before you actually file your taxes. The advance credit is paid directly to the insurance company every month to lower your premium payment amount.
Is there any difference in getting the credit right away compared to waiting until you file your taxes? The biggest difference is in how the premiums are paid. If you take the credit when you sign up for insurance, you can only apply it to your premiums, so the credit is essentially being sent directly to the insurance company. You can take the credit later, when you file your taxes, is possible, but you’ll be responsible for paying the full premium amount yourself. Then, when you file your taxes, you’ll essentially get paid back for those premiums, for as much credit as you qualify for.
What if I don't have health insurance yet? If you don’t have insurance now, you may have to wait for the next open enrollment. But if you’ve had a major life event happen, you may be eligible to apply under special circumstances. Examples of major life events:
- You had or adopted a child.
- You got married or divorced.
- You’re moving to a new state.
- Your income decreased by more than 20%.
- You entered a correctional institution or were recently released.
- You either became eligible for healthcare coverage or became ineligible.
Your circumstance may be different, but any change that affects your income or household size may qualify as a major life event. In most cases, you have 60 days from any major life event to apply for insurance coverage.
If you do receive the Premium Tax Credit or the Advance Premium Tax Credit, it will also affect your taxes:
- Anyone who receives the credit must file a return for that tax year.
- Anyone may claim a dependent’s Premium Tax Credit, and that doesn’t necessarily have to be the person who pays the premiums.
- If you receive the credit, you can’t file as married filing separately unless you’ve been a victim of domestic violence during the year.