What is a Tax Credit for Health Insurance?

A tax credit for health insurance is a financial subsidy provided by the government to help make health insurance more affordable for eligible individuals and families. This credit, known as the Advance Premium Tax Credit (APTC), is available to people who purchase health insurance through the Health Insurance Marketplace, such as Your Health Idaho. The APTC can significantly reduce the cost of monthly premiums, making quality healthcare more accessible for lower- and moderate-income households.

How Does the Health Insurance Tax Credit Work?

The health insurance tax credit works by reducing the monthly premiums you pay for your health insurance plan. When you apply for coverage through the marketplace, your household income and family size are used to determine if you qualify for the APTC and, if so, how much you can receive. This credit is “advanced” to your insurer each month, which means it directly lowers your premium payment rather than waiting until tax season to apply it.

For example, if your monthly premium for a marketplace plan is $500 and you qualify for a $300 APTC, you will only need to pay $200 per month.

Who Qualifies for the Health Insurance Tax Credit?

Eligibility for the health insurance tax credit depends on several factors, including:

  • Income Level: Typically, individuals and families with incomes between 100% and 400% of the Federal Poverty Level (FPL) are eligible. For example, a single individual with an income between $14,580 and $58,320 (based on 2024 FPL guidelines) may qualify. The income limits vary by household size.
  • Household Size: The FPL adjusts based on family size, so larger families may qualify with higher household incomes.
  • Use of the Marketplace: To receive the tax credit, you must purchase a health insurance plan through your state’s marketplace or the federal marketplace, not directly from an insurer.
  • Ineligibility for Other Coverage: If you are eligible for affordable employer-sponsored insurance or other government health insurance programs like Medicaid or Medicare, you may not qualify for the APTC.

How is the Tax Credit Calculated?

The amount of the health insurance tax credit you receive is calculated based on the cost of a benchmark plan and your household income. The benchmark plan is the second-lowest-cost Silver plan available on your marketplace. The APTC aims to ensure that you do not pay more than a certain percentage of your income on premiums for the benchmark plan. This percentage is determined by a sliding scale based on income.

The tax credit amount adjusts according to income changes, so it’s essential to report any significant income or household changes to the marketplace during the year. This ensures your APTC amount remains accurate and helps you avoid having to pay back excess credits at tax time.

How to Apply for the Health Insurance Tax Credit

To apply for the health insurance tax credit, you’ll need to complete an application through your health insurance marketplace during Open Enrollment (or a Special Enrollment Period, if eligible). The application will require details about your household size and income, and the marketplace will determine your eligibility based on this information. If you qualify, you can choose how much of the tax credit to apply upfront to your monthly premiums.

Steps to Apply

  1. Visit Your Health Insurance Marketplace: Start by creating an account on your state marketplace (e.g., Your Health Idaho) or the federal marketplace.
  2. Complete Your Application: Enter your household information and projected income for the upcoming year.
  3. Receive Your Eligibility Determination: The marketplace will calculate your eligibility for the tax credit and other financial assistance.
  4. Choose a Health Plan and Apply the Credit: Select a plan that fits your needs and decide how much of the credit to apply upfront.

Reconciling the Tax Credit at Tax Time

The APTC is based on your projected income, so if your actual income differs from your estimate, the IRS will reconcile this difference when you file your federal income tax return. You’ll complete Form 8962 to report the total amount of APTC you received and compare it to the amount you were eligible for based on your final income.

  • If Your Income is Higher: You may need to repay a portion of the APTC.
  • If Your Income is Lower: You may receive an additional credit on your tax return.

Benefits of the Health Insurance Tax Credit

The health insurance tax credit makes quality healthcare coverage more affordable for individuals and families who may otherwise struggle to pay full premiums. By applying this subsidy to monthly payments, the APTC reduces the financial burden of health insurance and ensures that a broader segment of the population can access essential health services.

For those seeking guidance on health insurance tax credits, The Shandro Group provides expert support in understanding your eligibility, completing applications, and maximizing the benefits of this valuable subsidy.

Consult with a Health Insurance Expert Today to learn more about how the health insurance tax credit can help you secure affordable coverage.