Health Insurance Facts: Tax

Subsidy and Tax Penalty

Posted on September 22, 2015

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 $23,550 and $94,200 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.
The flip side for not carrying a health insurance plan is a tax penalty, payable
when taxes are filed. When the Affordable Care Act was initially launched,
the penalty was designed on an ascending scale, small to start the first year,
with incremental increases each following year. In 2016 the tax penalty for
not having health insurance on a per household basis is $695 per person,
$347.50 per children, or, 2.5% of overall income, whichever is greater.
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.