The Affordable Care Act ushered in a new level of benefits and complexity for individuals and families that purchase their own health insurance. On the positive side, anyone who falls between 100%-400% of the Federal Poverty Level (a family of four that makes between roughly $23,000 and $95,000 on average, depending on their state of residence), is most likely eligible to receive a tax subsidy on their health insurance premium. The subsidy provides cost assistance to lower the overall cost of health insurance each month. The IRS requires the completion of an additional tax form if a subsidy is granted (form 1095-A helps you complete the required 8962), but the extra paperwork can be well worth the time to save money on a healthcare plan. The average marketplace enrollee with an Obamacare plan paid an average of less than $100 for health insurance in 2015. It totaled an average of $268 savings each month.
To qualify for a tax subsidy and receive cost assistance on your health insurance plan, the IRS requires the following:
- You must be in the 100%-400% percentile of the Federal Poverty Level to qualify for a tax subsidy (if you make less than 138% of the Federal Poverty Level and your state expanded its Medicaid program, you could be eligible for Medicaid assistance instead).
- You must file a joint tax return. (There are certain exemptions for those who have suffered domestic abuse or spousal abandonment. If you believe you might qualify, ask your tax professional.)
- You cannot be claimed as a dependent of another individual.
- You are not eligible for health insurance through an employer.
- You are not eligible for any other government program, like TRICARE.
- You must be up-to-date with your IRS tax filings.
It is vital that you contact your state exchange or the federal marketplace during the year if you have a life situation that changes your household size or income status. If you receive a pay raise but fail to tell the marketplace your total household income has changed, you could owe the IRS money at tax time. If you have a baby or adopt a child, your household size increases, and you might be eligible for additional subsidy dollars to lower your health insurance cost. Communication with the marketplace over these types of life changes will reduce financial consequences.