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Small Business Employee Benefits and HR Blog

What Is My Individual Health Insurance Tax Credit?

What Is My Individual Health Insurance Tax Credit?Massive tax credits are available to help you buy individual health insurance coverage through the federal and state-based health insurance marketplaces.

The tax credits are only available to you if you enroll in health insurance through your state's health insurance marketplace. If you are eligible for these health insurance tax credits, they will cap your cost of health insurance at 2% - 9.5% of your household income.

How Do I Know if I am Eligible for Health Insurance Tax Credits?

Premium tax credits are available for individuals and families who meet certain income requirements and do not have access to affordable health insurance through their employer or another government program.

Eligibility for 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 tax credit is based on a sliding scale, with those who make less money get a larger financial support to lower the cost of their insurance coverage. Individuals and families who make between 138 percent and 400 percent of the federal poverty level may be eligible for a tax credit. You can look here for the most current information.

Tax credit calculation also considers your involvement in certain employer health arrangements. Employees who are enrolled in a Small Business HRA have their premium tax credit reduced dollar-for-dollar by the monthly allowance amount they receive from their employer.

Quick Facts about the Health Insurance Tax Credits:

Tax credits lower the cost of your premium. 

2. Tax credits reduce the amount of the premium you will pay for insurance.

3. Tax credits help low- and middle-income individuals and families. 

4. Tax credits are available to individuals and families who meet certain income requirements.

5. Tax credits can be applied to the cost of your health plan when you enroll – you do not need to wait until you file a tax return at the end of the year.

6. Tax credits are only available through the Health Insurance Marketplaces. You must enroll in a health plan through the Health Insurance Marketplaces if you want to use your tax credits.

7. Tax credits will be adjusted if you're enrolled in a Small Business HRA. Your tax credit will be deducted dollar-for-dollar by the amount of your employer's monthly contribution.

8. Tax credits are paid directly to your health plan. These tax credits are paid by the Health Insurance Marketplace to your health plan to keep your out-of-pocket costs low.

9. Tax credits will be adjusted at the end of the year based on your actual income. At the end of the year, the tax credits may be adjusted if your income is different than you anticipated. This means that you will want to notify the Health Insurance Marketplace if your income changes.

How Much will the Health Insurance Tax Credit Help Me?

The amount of the tax credit depends on your household income and family size.

Below are some examples of potential costs. Check your state's Health Insurance Marketplaces to see exact premium and plan choices so you can know exactly what your insurance will cost.

Household Size Annual Income Estimated Annual Cost of Health Insurance (without government subsidy) Annual Federal Government Subsidy Actual Cost of Health Insurance
4 $35,000 $9,416 $8,043 $1,373 ($114 per month)
4 $80,000 $9,416 $1,816 $7,600 ($633 per month)
1 $27,000 $3,098 $1,066 $2,032 ($169 per month)

The tax credits are available when you buy insurance so you do not have to pay all of the premium costs up front and wait for reimbursement. 

What if my Income Changes?

Any eligible employee without insurance can shop through Health Insurance Marketplaces for coverage, regardless of income. Your income level determines your eligibility for the tax credit, to help pay your premium. If your income changes over the year, your 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 that you stay on top of any income changes so you have an idea of how much you will owe at tax time.

Editor's Note: This post was originally published in February 2013.

Related - Health Insurance Tax Credit FAQ - What if My Income Changes?

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