Advance Premium Tax Credits are available for individuals and/or families who meet certain income requirements and do not have access to affordable health insurance through their employer or another program. Eligibility for Advance Premium(Subsidy) Tax Credits is based on a standard, called the “Federal Poverty Level,” that looks at your household income and the number of people in the household. The size of the Advance Premium Tax Credit is based on a sliding scale with those who have less income are getting a larger financial support to lower the cost of their health insurance coverage. Individuals and/or families who make between 133 percent and 400 percent of the Federal Poverty Level may be eligible for an Advance Premium (Subsidy) Tax Credit. This means that an individual making up to $45,960 and a family of four earning up to $94,200 may be eligible for a Advance Premium (Subsidy) Tax Credit.
The amount of Advance Premium (Subsidy) Tax Credit that a person can receive is based on the premium for the second lowest cost Silver plan in the exchange area where the person is eligible to purchase coverage. A Silver plan is a plan that provides the essential benefits and has an actuarial value of 70%. A 70% actuarial value means that on average the plan pays 70% of the cost of covered benefits for a standard population of enrollees. The amount of the Advance Premium (Subsidy) Tax Credit varies with income such that premium a person would have to pay for the second lowest cost Silver plan would not exceed a specified percentage of their income (adjusted for family size), as follows:
INCOME LEVEL PREMIUM AS A PERCENT OF INCOME
Up to 133% of (FPL) 2% of income
133 – 150% of (FPL) 3 – 4% of income
150 – 200% of (FPL) 4 – 6.3% of income
200 – 250% of(FPL) 6.3 – 8.05% of income
250 – 300% of (FPL) 8.05 – 9.5% of income
300 – 400% of the (FPL ) 9.5% of income
The Federal Poverty Level (FPL) income guidelines for determining the Advance Premium (Subsidy) Tax Credit for the Affordable Care Act in which an individual may be eligible are as follows:
HOUSEHOLD SIZE 100% of FPL 400% of FPL
1 $11,490 $45,960
2 $15,510 $62,040
3 $19,530 $78,120
4 $23,550 $94,200
5 $27,570 $110,280
6 $31,590 $126,360
7 $35,610 $142,440
8 $39,630 $158,520
How does the Affordable Care Act define an individuals income to determine if they are eligible for Advance Premium (Subsidy) Tax Credit? The Modified Adjusted Gross Income is the term used by the Internal Revenue Service to determine if a taxpayer is eligible to use certain deductions or credits. “Modified Adjusted Gross Income” (NOT ”Adjusted Gross Income”) will be used in determining eligible under the Federal Poverty Level formula guidelines in calculating the Advance Premium (Subsidy) Tax Credit.
An individual can calculate their Modified Adjusted Cross Income (MAGI) as outlined below:
- Calculate your ANNUAL household GROSS INCOME (line 22 of IRS form 1040) which is the income you received from wages, interest and basically any income you made through business, trade or investments.
- Calculate your ANNUAL household ADJUSTED GROSS INCOME (line 37 of IRS form 1040). Once you have your gross income, you “adjust it by subtracting qualified deductions from the gross income.
- The final step is to calculate your ANNUAL household MODIFIED ADJUSTED GROSS INCOME by adding back certain items to your Adjusted Gross Income including:
- Deductions for IRA contributions
- Deductions for student loan interest or tuition
- Excluded foreign income
- Interest from EE (employee) savings bonds used to ay higher education expenses
- Employer-paid adoption expenses
To complete the application for Advance Premium (Subsidy) Tax Credit an individual has to project their annual total household Modified Adjusted Income a year in advance of the actual year in which they applied for the Advance Premium (Subsidy) Tax Credit. So, what happens if your actual annual household Modified Adjusted Income does not match your project annual total household Modified Adjusted Income you included with your application for Advance Premium (Subsidy) Tax Credit under the Affordable Care Act? If your income changes over the year, your Advance Premium (Subsidy) Tax Credit will be adjusted accordingly. If your income increases, you will have to pay the difference at tax filing time. It will be important to stay on top of any income changes so you have an idea of how much you will owe at tax time. Example: A family of four with income of 400% of the Federal Poverty Level ($94,200 or more). Those with income exceeding four times the Federal Poverty Level would have to repay the entire $2,500 from Advanced Premium (Subsidy) Tax Credit, The Advance Premium Tax Credit allows a person to receive assistance at the time that they purchase health insurance rather than paying their premium out-of-pocket and waiting to be reimbursed when filing their annual income tax return. The subsidy will be paid directly to the insurance company on behalf of the policyholder and the policyholder will pay the net difference between the standard premium of their Health Plan and the Advance Premium (Subsidy) Tax Credit.