All Americans are now required to have health insurance or be subject to a penalty that will be paid on next year’s income tax return.
As of right now, if you get your health insurance coverage through a federal or state health insurance marketplace, you may be eligible for a premium tax credit, which will reduce the total cost of coverage for low to medium income households.
The 2014 open enrollment period ended earlier this year, but you may still qualify for the Special Enrollment Period if you’ve had a change in life circumstances, such as marriage, divorce, birth of a child, expecting a child, change in income or move to a new state.
The IRS is authorized to provide premium tax credits to individuals with household incomes between 100 and 400% of the federal poverty level who are not eligible for other minimum essential coverage (such as affordable and adequate employer coverage, Medicaid or Medicare).
According to the IRS, to qualify for the premium tax credit you must meet all of the following requirements:
- buy health insurance through the marketplace;
- are ineligible for coverage through an employer or government plan;
- are within certain income limits;
- do not file a Married Filing Separately tax return (unless you meet the criteria in Notice 2014-23, which allows certain victims of domestic abuse to claim the premium tax credit using the Married Filing Separately filing status for the 2014 calendar year); and
- cannot be claimed as a dependent by another person.
Normally, tax credits are claimed at year end on your income tax return. However, this credit can be enjoyed right away. Beware, however, if you have a life-changing event that affects the premium tax credit, you will have to report the change to the marketplace.
For example, if you suddenly get a high-paying job, your credit will be reduced or eliminated. This change must be reported otherwise you may have a balance due on your tax return next April 15 rather than enjoying a refund. Or it could go the other way. Say your family size increases and you are eligible for a larger credit. Report it in order to further lower your monthly outlay.
Obamacare and the premium tax credits have been the subject of controversy which culminated in two court cases with conflicting results.
In Halbig v. Burwell, heard in the United States Court of Appeals for the District of Columbia, it was ruled over a strong dissent that an IRS rule allowing federally-facilitated exchanges to issue premium tax credits to low and moderate income Americans is invalid.
A couple of hours later, in King v. Burwell, the Fourth Circuit Court of Appeals in Richmond, Va., ruled in favor of the IRS and the premium tax credits.
For now the subsidies will remain in effect. And many experts say the Supreme Court will have to decide the fate of subsidies.