The Affordable Care Act and your 2014 taxes, Part II

The Premium Tax Credit (a.k.a. government assistance in paying for your government health insurance premiums based on financial need)

Beginning in the 2014 tax year, the Affordable Care Act enacted the Premium Tax Credit. It is designed to assist individuals and families with low to moderate income afford health insurance through the Health Insurance Marketplace (government sponsored exchanges).

Who is eligible for the Premium Tax Credit?

A premium tax credit may be available to individuals and families with incomes between 1 to 4 times the federal poverty level. If your income is below the poverty line you are eligible for other government coverage such as Medicare and Medicaid and should use those options instead (and you may not receive the tax credit for these options). Additionally, the insurance plan must be purchased through the government sponsored health insurance marketplace (exchange) to qualify, meaning health insurance plans from any other source do not qualify.

When do I receive for the Premium Tax Credit?

The assistance can come as a tax credit at the end of the year on your individual tax return, helping offset the health insurance premium costs you had paid through the previous year. It can also be paid (all or only some of it) directly to your insurance company in advance, in effect lowering the cost of your monthly health insurance premiums throughout the year. Both options require an extra tax form to be included with your taxes, so be sure your accountant knows if you plan on taking/have been taking in advance the credit.

How do I figure out how much of the Premium Tax Credit I am eligible for?

The credit will be figured based on household size, projected annual income, geographical area and other relevant factors. Essentially it is determined by a complex series of rules and tables that aim to afford you what is deemed a reasonable insurance plan at a cost that is a percentage of your income deemed reasonable for your level of income and family size.

Rather than walking you through the whole confusing process so you can spend time setting up and solving a complex math problem, the best way to estimate your PTC is to use this online calculator.

Also, be aware that changes to your income or family situation may change your PTC. These changes would need to be reported to the proper agency.

A visual learner? We think this video does a good job explaining the PTC as well!