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Final Regs. Health Ins. Premium Assistance Credit

A penalty is imposed on certain individuals who fail to have minimum essential health insurance for themselves and their dependents. However, to help subsidize the cost of health insurance and make it more affordable, eligible individuals who purchase coverage under a qualified health plan through an Affordable Insurance Exchange may receive a premium assistance credit.

In order to be eligible for the premium assistance credit, a taxpayer must satisfy the following criteria:

  • The taxpayer's household income must be at least 100 percent, but not more than 400 percent, of the federal poverty line (FPL) for a family of the size involved. As an example, based on the 2016 FPL, a family of four must have household income between $24,250 and $97,000.
  • With some exceptions, taxpayers who are married at the end of the tax year must file a joint return.
  • The taxpayer must pay their share of premiums not covered by advance credit payments.

In addition, an individual who can be claimed as another taxpayer's dependent is not eligible for the premium assistance credit.

The size of the premium tax credit is based on a sliding scale. Those who have a lower income get a larger credit to help cover the cost of their insurance. The premium assistance credit amount for any tax year is the sum of the premium assistance amounts for all of the coverage months during the tax year. The term coverage month does not include any month that the individual is eligible for minimum essential coverage outside the individual market, e.g. provided under an employer-sponsored plan.

However, an employee is not considered eligible for minimum essential coverage under an employer-sponsored plan, if the employee’s required contribution for the employer-sponsored would exceed 9.5 percent of the employee’s household income. This percentage is adjusted annually. For plan years beginning in 2015, the percentage is 9.56 percent, and for plan years beginning in 2016, the percentage is 9.66 percent. This rule also applies to family members of an employee who would be eligible to enroll in an employer-sponsored plan.

In addition, an employer-sponsored plan that provides less than 60 percent coverage for total allowed costs does not provide minimum essential coverage because it does not provide minimum value.

When you or a family member applies for Marketplace coverage, the Marketplace will estimate the amount of the premium tax credit that you may be able to claim for the tax year, using information you provide about your family composition, projected household income, and other factors, such as whether those that you are enrolling are eligible for other, non-Marketplace coverage. Based upon that estimate, you can decide if you want to have all, some, or none of your estimated credit paid in advance directly to your insurance company to lower your monthly premiums.

If you choose to have advance credit payments made on your behalf, you will be required to file Form 8962 with your income return tax to reconcile the amount of advance payments with the premium tax credit that you may claim based on your actual household income and family size.

If you do not opt for advance credit payments, or the Marketplace determines that you were not eligible for advance payments at the time of enrollment, you may be eligible to claim the credit on Form 8962 when you file your tax return for the year, which will either lower the amount of taxes owed on that return or increase your refund.

If you have any questions on the premium assistance credit, or on healthcare reform in general, please call our office for more information.