To help low income individuals and families afford health insurance the Premium Tax Credit was devised and provides a form of subsidy to help them pay the cost of health insurance. In order to qualify for the credit the health insurance must be obtained through a state insurance Marketplace or the federal insurance Marketplace where a state does not have one.
Generally, eligible individuals and families are those with household income at least 100%*, but not more than 400% of the federal poverty level and who are not offered affordable health insurance under an employer plan, Medicaid or other acceptable coverage. Based upon the 2016 poverty levels, the credit would phase-out at $46,680 $47,520 for individuals and $97,200 for a family of four.
- The 100% is the transition point between where Medicaid qualification ends and marketplace qualification begins. Some states have expanded Medicaid, which provides coverage up to 133% (the amount is inflation adjusted annually and is 138% in 2015). In those states the 100% is replaced with the expanded Medicaid percentage.
Eligible individuals and families may enroll in a plan offered through a Marketplace by providing the individual’s or family’s household income to the Marketplace. Based on the information provided to the Marketplace, the family’s poverty level will be determined. Then the Marketplace will determine the amount of premium tax credit to provide in advance to offset the cost of the insurance.
CAUTION: The credit is based upon income and family size. Providing incorrect information to the Marketplace can result in too much premium tax credit being applied in advance, leaving a taxpayer with an unpleasant surprise when they file their tax return and have to pay back the excess. If during the year there are changes in income and family makeup, immediately reporting those changes to the Marketplace will help to minimize problems. Failure to notify, as often happens, could cause too large or too little of an advance credit being applied, with the result being the taxpayer will have to repay a portion of credit or get a refund of the excess when they file their tax return. Either way, the credit for the year must be reconciled on the tax return for the year.