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help make qualified health plans (QHPs) that are available through Exchanges more
affordable, certain individuals and businesses may be eligible for federal
financial assistance. Better known as premium credits, this cost sharing
support is also slated to encourage eligible persons to purchase insurance.
What are Premium Credits?
put, premium credits are advanceable and refundable federal tax credits that are used to
pay for health insurance purchased through a state or federally-run health Exchange.
The credits for individuals and their families will be available starting in
How to Qualify for Premium
may qualify for premium credits by meeting the following criteria:
- File Income Taxes – While premium credits can be distributed directly to the insurer in
advance, they must be reconciled through one’s individual tax returns. Married
persons must file a tax return to receive the credit. Individuals who have
little or no tax liability may be eligible for premium credits.
in an Exchange Plan – persons who are residing in a state with an established
exchange and are not incarcerated or undocumented aliens may be eligible.
- Not Eligible
for Other Acceptable Coverage - premium credits will be available for individuals
who do not qualify for minimum essential coverage available through Medicare,
Medicaid, Children’s Health Insurance Programs (CHIP), coverage related to
military service, or an employer-sponsored plan. Some individuals who are
eligible for employer-sponsored coverage may be eligible for premium credits if
the self-only coverage costs them more than 9.5% of their household income or covers
less than 60% of total allowed costs.
Does Not Contribute Toward Exchange Plan – individuals enrolled in QHPs offered
through the Exchange that their employers contribute towards will not be eligible for premium credits.
Less Than 400% of the Federal Poverty Level (FPL) – individuals must earn between 100% and 400% FPL to
be eligible for a premium credit. Those whose income is close to the 400% FPL
may or may not receive a premium credit.
table illustrates the estimated percentage of their income individuals may pay
for coverage depending on their FPL:
Poverty Level (FPL)
0% to 133%
2% of income
133.01% to 300%
3% to 9.5% of income
300% to 400%
400% and higher
Not eligible for premium
The following table illustrates the FPL for 2012:
Image source: http://aspe.hhs.gov/poverty/12poverty.shtml
The specific process
through which individuals will be screened for eligibility will likely be specified
by the Department of Health and Human Services in the near future.
Calculation of Premium
The following illustration shows how premium credit amounts
will be calculated:
Image Source: CRS Health Insurance Premium Credits in the Patient Protection and Affordable CareAct.
To use the Kaiser
Foundation’s premium subsidy calculator, click here »
In addition to
premium tax credits for individuals to use within the Exchange, small
businesses also have an opportunity to recoup the expense of funding health
insurance for its employees.
Business Tax Credit
A small business may
be eligible to receive a tax credit if it pays at least 50% of the self-only health
insurance premiums (i.e. a qualifying arrangement) and has 25 or fewer full
time employees that each earn less than $50,000 a year. The credit, which was
first available for the 2010 tax year, is designed to help low to
moderate-income workers obtain health insurance through an employer (offering
coverage for the first time or paying for existing coverage).
Only payments made
through a qualifying arrangement, i.e. a uniform percentage paid towards the employee
premium, are eligible for the tax credit. For the purpose of this credit, Health
Reimbursement Accounts (HRAs) and Health Flexible Spending Accounts (FSAs), and
Health Savings Accounts are not considered qualifying arrangements.
include taxable employers and employers that are organizations described in §
501(c) and exempt from tax under § 501(a) (tax-exempt employers). A sliding scale determines the eligible credit amount for a business.
The following individuals are not
eligible for the small business tax credit:
- Sole proprietors
- Partners in a partnership
- Shareholders owning more than 2% in an S corporation
- Owners of more than 5% of other businesses
- Family members of the above individuals are, also, not eligible
To learn more about the small
business health care tax credit, click here »
For FAQs about calculating
the tax credit, click here »
To watch a video
about the small business tax credit, click here »
While the IRS has
been forthcoming with information about the small business health care tax
credit, many small businesses have shied away from applying for it. Why? It can
take several hours and or professional tax assistance to determine eligibility.
PPACA has provided
two avenues through which individuals and small businesses may receive
financial support to foster the purchasing of health insurance. While the
premium tax credit for individuals will become available in 2014, the credit
opportunity for small businesses became available for the 2010 tax year.
Additional clarification and support is needed to help determine which
individuals are eligible for the tax credits initially and in the long term.
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Health Insurance Premium Credits in the
Patient Protection and Affordable Care Act (ACA)
of Treasury: Health Insurance Premium Tax Credit
IRS: Affordable Care Act Tax Provisions
Small Business Health Care Tax Credit for
IRS: Section 45R – Tax Credit for Employee Health
Insurance Expenses of Small Employers. Notice 2010-82
Kaiser Family Foundation: Health Reform
Health Insurance Premium Credits in the
Patient Protection and Affordable Care Act (PPACA)
overview is for general information purposes only and should not be taken as
actual tax or formal legal advice. Please consult with a lawyer or tax
professional for guidance.