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Premium Assistance Credit

Tax credits will be available for low-income individuals who obtain health insurance coverage with a qualified health plan (QHP) through an “Exchange”. 


The Health Care Act requires each state to establish an “American Health Benefit Exchange” (“Exchange”) by Jan. 1, 2014, and requires insurers to provide QHPs to be sold on these Exchanges. The Premium Assistance Credit applies to QHPs purchased on an Exchange. The Federal Exchange will be used by individuals who reside in states that have not set up exchanges.

Applicable Taxpayers
– Generally, these are individuals whose household income is at least 100%, but not more than 400% of the federal poverty line and who don't receive health insurance under an employer plan, Medicaid or other acceptable coverage.  Based upon the current poverty levels, the credit would phase-out at $45,960 for individuals and $94,200 for a family of four.

Enrollment - Eligible individuals will enroll in a plan offered through an Exchange and report his or her income to the Exchange. Based on the information provided to the Exchange, the individual will receive a premium assistance credit based on income.

Premium Subsidy or 1040 Credit – The credit can be used to:
  • Reduce the monthly insurance premiums,
  • Claim a credit on the 1040 tax return, or
  • Some combination of both.
The credit is based upon income and family size.  Thus changes in those two items can increase or lower the amount of the credit. Immediately reporting changes ensures the correct credit being used as a subsidy for the insurance premiums.  Failure to notify, as no doubt will happen frequently, could cause too large of a subsidy to be applied, with the result being the taxpayer will have to repay a portion of credit when they file their tax return. Either way, the credit for the year must be reconciled on the tax return for the year.
Failure to Pay the Difference - Individuals who fail to pay all or part of the remaining premium amount will be given a mandatory three-month grace period before an involuntary termination of their participation in the plan.

Eligibility - Eligibility for the premium assistance credit will be based on the individual's income for the tax year ending two years before the enrollment period. (Committee Report)  The Secretary of Health and Human Services (HHS Secretary) must establish procedures for determining whether an individual who is applying for coverage in the individual market by a QHP offered through an Exchange, or who is claiming a premium assistance credit or reduced cost-sharing, meets the necessary eligibility requirements.

Amount of Premium Assistance Credit - The credit is based on the taxpayer's household income level relative to the federal poverty line.  The calculation is computed on a sliding scale starting at 2.0% of income for taxpayers at or above 100% of the poverty line and phasing out to 9.5% of income for those at 400% of the poverty line. The reference premium will be the second lowest cost silver plan available in the individual market in the rating area in which the taxpayer resides.

Deductibles & Co-payments - The standard out-of-pocket maximum limits will be reduced by:
  • Two-thirds for individuals with household incomes of more than 100% but not more than 200% of the poverty line,

  • One-half for individuals between 201% and 300% of the poverty line, and

  • One-third for individuals between 301% and 400% of the poverty line. The cost-sharing subsidy is available only for those months in which an individual receives the Premium Assistance Credit.

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