The Facts about the Obamacare Tax Credits

It’s been said, a fool and his money are soon parted.  The rest of us wait for April 15th.  But that might be about to change.  There is real gold tucked inside the health care laws complex tax credits if you’re willing to dig a little.

If your family makes less than $94,000 per year, the taxman is willing to ease the pain you feel from ever-increasing health insurance costs.  And you don’t even have to wait until you file your taxes to get the goods.  You can start cashing in next January.

The Affordable Care Act, otherwise known as Obamacare, contains a provision for tax credits (also referred to as “subsidies”) that could be worth thousands of dollars per year to your family. Don’t get caught up in the terminology.  The bottom line is the Feds will pay a portion of your health insurance costs if you qualify.

According to the Kaiser Foundation, a family of four with the median household income of just over $51,000 would receive a tax credit of $4,126 per year in my home state of Colorado.  Better yet, the subsidy will be paid each month directly to your health insurance provider thereby reducing your out of pocket cost.  The lower your income, the higher your tax credit will be and vice versa.  The tax credit is “refundable” meaning it will be paid even if it exceeds your tax liability.

Here’s How to Maximize Your Tax Credit Without Getting a Nasty Surprise At Tax Time

1. Estimate your household income for 2014.  Some have suggested that since the states aren’t required to verify income, you could underestimate your income to increase the tax credit.  Don’t do it.  When you file your 2014 tax return, you will have to calculate the tax credit based on your actual income.  If you low-ball the income estimate now, you could face a hefty bill come tax time.
2. Determine the amount you must pay and the amount of your tax credit.  According to the Affordable Care Act, you must pay between 2% and 9.5% of your income for the cost of your health insurance. The closer you are to the poverty line the lower the amount you must pay.  The closer you are to $94,000 (4 times the poverty line) the more you must pay.  The Feds will pick up the difference between the total cost of your plan and the amount you just calculated.  The Kaiser Foundation provides a handy calculator to help you estimate the amount you will pay out of pocket and the amount of the tax credit. Go to: http://kff.org/interactive/subsidy-calculator/
3. Purchase a qualifying plan on your state’s exchange or on the federal site…if it ever gets up and running.  Tax credits are based on the cost of the “silver plan.”  You can apply the tax credit to a lower cost bronze plan and reduce your out of pocket cost or you can apply it to a gold plan if you’re willing to pay more of the total cost yourself.  The Feds will pay the same amount to the insurance provider regardless of which plan you choose.

If you’ve been paying attention to the news recently, you know there are a lot of unanswered questions about the short-term prospects for Obamacare. But love it or hate it, at present the tax credits under the ACA appear to be the real deal.

Richard Jonas is a licensed insurance professional and the president of PrivateQuote.com, an online marketplace for term life insurance. You can download Richard’s free e-book, “How to Buy Life Insurance Online – An Insider’s Guide” by clicking here.