Most Americans are well aware of the fact that healthcare in this country is outrageously, and in some cases prohibitively, expensive, largely due to the influence of private insurance providers. While we may not be quite ready for the socialized healthcare system that our neighbors to the north (and many countries throughout the world) employ, we clearly needed affordable healthcare options to ensure that millions of uninsured Americans could gain access to preventive and emergency services. Obamacare, or the Affordable Care Act (ACA), was the solution. The system is designed to relieve the financial burden on underserved populations (the elderly, disabled, and low-income, for example). When you discover the costs of your new insurance policy under Obamacare, you could have understandable sticker shock. The good news is that you could be eligible for tax credits to further reduce the price you pay for health insurance premiums.
How do you know if you’re eligible for Obamacare tax credits? How do you go about claiming them if you qualify? Before you can claim benefits, you have to figure out if you are eligible to receive them by understanding your Modified Adjusted Gross Income (MAGI), calculated based on your household income and the number of dependents in your home. From there you can calculate the percentage of your income that is going toward healthcare insurance coverage for each person. If the number falls between certain percentages, you may be eligible for some level of tax credit.
Of course, it also depends on the plan you have selected. You can’t choose the high-priced platinum plan and expect to get a tax credit. If you’re unable to afford the most affordable plans because the cost makes too big of a dent in your household income, then you are much more likely to qualify for tax credits. If you’re not sure about your status and whether or not you qualify for credits, you can either speak with an ACA specialist through your state healthcare insurance exchange or you can talk to a tax prep specialist to help you with calculation.
Once you’ve determined if you are eligible for an Obamacare tax credit, you’ll find there are two ways to claim it. The first option is advance payments. These will be applied to your monthly premiums as a way to lower your immediate out-of-pocket expenses. There is a maximum to how much advance payment of tax credit can be applied, so if you end up being eligible for more than the amount paid by the end of the year, you’ll receive the difference as a credit when you file your annual income tax returns. If, however, you elect to have the maximum advance paid and you qualify for a smaller rebate based on a change of income or other factor, you will be required to repay the difference.
In other words, it could be a bit of a gamble. If your calculations are off, you might end up owing some money at tax time, although essentially you’ll still come out ahead because a decent portion of your healthcare insurance premiums will have been paid throughout the year. The other option is to simply deduct the full tax credit when you file your income tax return. This will ensure that you don’t take too much money and you’ll either reduce what you owe the IRS or perhaps receive a refund that you can apply to your upcoming premiums.