If you are eligible for the Premium Tax Credit you can decide to take it now based on your estimated income or take it later when you file your tax return. Who does this impact and what should you do?
What is the Credit and who is eligible?
Topline: If you have health insurance available from your employer, this credit is not for you. If, on the other hand, you are self-employed, your employer recently provided you a notice they are moving health insurance coverage to the “exchange or marketplace”, or you currently do not have health insurance then this information is important to understand.
Open enrollment for health insurance plans through the Marketplace runs from November 1st through December 15th. If you are eligible and enroll in one of these plans through the Insurance Marketplace you may be eligible to have your premium reduced by the new Premium Tax Credit.
To be eligible for the Premium Tax Credit you must;
- buy your health insurance through the new Health Insurance Marketplace (state exchanges)
- be ineligible for health insurance coverage through an employer or through other government programs
- not be claimed as a dependent on someone else’s tax return
- if married, file a joint tax return
- meet certain income requirements
Take it now or claim it later?
One of the tricky decisions you’ll make if enrolling for health insurance through the Marketplace is deciding to take the Premium Tax Credit to reduce your monthly health insurance premium payments or wait and receive the tax credit when you file your tax return. Here are some tips:
Predictable income? If you can accurately predict your income and number of dependents consider applying an estimated credit now to reduce your monthly health insurance cost.
Predictable family situation? If you know the number of dependents you will have and your status (married, single, etc.) in addition to your income consider applying the credit during the year. If your family situation changes during the year you can always update your profile in the plan.
Understand the downside. If you misrepresent your income and it impacts your eligibility for the Premium Tax Credit you will have to repay the credit on your tax return. This could become a real financial hardship.
Middle ground? Consider estimating your income, but make it slightly higher than you anticipate. This way your monthly health insurance premium will be a bit higher, but you may also receive a larger refund at the end of the year.
Remember, if you do not have health insurance you may be subject to new penalties payable when you file your tax return.