The Affordable Care Act’s premium subsidies are calculated based on your best estimate of next year’s income; however, you may be unable to estimate exactly and it is therefore vitally important that any changes in income be reported to the marketplace as soon as they arise.
These changes will be reflected in your annual tax return, where you’ll reconcile premium subsidies.
Subsidies are not taxable
The Affordable Care Act (ACA) includes subsidies designed to make health insurance more affordable for low-income individuals. These subsidies, known as premium assistance tax credits and cost-sharing reductions, can be claimed up-front throughout the year or reported on your taxes without being considered income and thus not taxed as income.
Your household income must fall below 138% of the federal poverty level to qualify for marketplace subsidies through the Affordable Care Act Marketplaces, and its amount will depend on your MAGI (Medicare Adjusted Gross Income), which includes wages, interest, dividends, social security benefits and any other sources of income in your home such as wages of spouse and any dependents living within it.
Although ACA marketplace plans are an impressive accomplishment, their affordability could be jeopardized by changes to subsidies. Republicans in the House of Representatives have proposed capping them at 400% of FPL; this would lead to significantly more people paying higher premiums for these plans.
Subsidies are refundable
The Affordable Care Act makes health insurance more accessible for low-income individuals by offering refundable tax credits as subsidies to help pay premiums. Most people take this subsidy in advance and it is paid directly to their health insurer every month; however, due to being determined using an estimate of future year income rather than actual taxable dollars earned, there may be instances in which it might overpayment occurs throughout the year.
To prevent this from occurring, enrollees at marketplace/exchange will often submit updates regarding their income status throughout the year so that the market can instantly adjust subsidies accordingly. This helps ensure their subsidized amount matches up with their taxable income when filing taxes in the spring. Furthermore, contributing to an HSA or pre-tax retirement account can lower taxable income and increase ACA subsidies simultaneously.
Subsidies are not income
ACA premium subsidies (known as Advance Premium Tax Credits or APTC) help people pay for health insurance exchange marketplace plans. While not considered income, they do need to be reported when filing taxes as they’re calculated based on an estimate of your expected annual income; so if you overestimate it could lead to too much subsidy being given out.
The Affordable Care Act (ACA) offers subsidies to help individuals and families with incomes between 100% and 400% of the federal poverty level purchase health insurance on an exchange. These subsidies are applied directly to reduce monthly premium costs for marketplace plans; unlike other health plans available through Obamacare there is no out-of-pocket maximum amount that applies when purchasing these plans.
The Affordable Care Act also includes cost-sharing reductions that lower out-of-pocket expenses such as copayments and coinsurance premium subsidies, unlike cost-sharing reductions do not count as income and are therefore tax free; however if your income changes drastically during the year then reporting it to Marketplace may be necessary in order to adjust cost-sharing subsidies accordingly.
Subsidies are not tax-free
Obamacare enrollees can take advantage of premium tax credits to lower monthly costs for individuals with lower incomes. The subsidies are calculated based on estimates of your expected income for the year and can be altered throughout the year, as well as cost-sharing reductions that reduce copayments and deductibles.
People whose income falls within 400% of the federal poverty level qualify for subsidies from ARP and IRA; these subsidies will increase in 2022 to assist more individuals afford health care insurance policies.
Notifying the exchange if your income changes is essential if you want an advance premium credit that fits with your needs, otherwise you risk ending up with too large or too small of an advance premium credit amount. If this occurs, reconciling any discrepancies will require comprehensive information regarding your income; in most cases you’ll need to submit Form 8962 with your taxes as proof.