Do You Qualify for Affordable Care Act (ACA) Tax Credits?

Find out if you'll qualify for health care credit.

If you purchase your own individual health insurance coverage from your state health insurance exchange, you may qualify for tax credits under the Affordable Care Act (ACA; also called Obamacare) to help pay the cost. The rules for obtaining the credits depend on the year.

Overview of ACA Tax Credits

Although they are called credits, the payments made under the ACA are really a government-funded subsidy. You don't need to owe any income taxes to receive the credit. And, unless you direct otherwise, the credit is paid directly to your health insurance company, not to you when you enroll in your health insurance plan. This means that you do not need to wait until your taxes have been filed and processed to receive the credit; nor do you need to pay the full premium when you purchase health insurance and then wait to be reimbursed.

To obtain the ACA credit, you must: (1) obtain your health insurance through your state exchange, (2) file a joint return if you're married, and (3) not have access to affordable health coverage elsewhere--for example, through an employer or spouse's employer.

You must also obtain your health insurance during the open enrollment period, which is ordinarily November 1 through December 15 (but is longer in a few states). However, you can still obtain coverage after the open enrollment period if you have a life change—for example, you move to another state, lose your health insurance, get married or divorced, or have a baby. You can also get ACA coverage anytime if you qualify for Medicaid in your state.

A majority of states use the federal exchange, but several have their own state exchanges. You'll be directed to the appropriate exchange website. You'll have to complete an application that includes your estimate of what your income will be. The healthcare.gov website has detailed advice on how to do this accurately (see How to estimate your expected income). When your application is complete, the exchange will determine whether you qualify for the credits, and, if so, how much. You'll need to verify your income when you file your taxes for the year; and, if you end up earning more than you estimated, you may have to pay back all or part of your tax credits. If your income changes unexpectedly during the year, you can let your exchange know and they will adjust your credit so you don't get paid too much or too little.

ACA Tax Credits for 2021

For 2021 (and 2020), individuals and families are required to pay no more than 8.5% of their household income for ACA health insurance. Regardless how high their income, they are entitled to a premium tax credit to the extent the cost of the benchmark silver benchmark plan in their area exceeds 8.5% of household income. Those with household incomes under 400% of the federal poverty level are required to pay less than 8.5% of their income for health insurance, based on a sliding scale. For example, if your income is $100,000, you are required to pay no more than $8,500 for ACA coverage. If a silver plan for your family costs $15,000, you are entitled to a $6,500 premium tax credit.

ACA Tax Credits for 2022 and Later

Starting in 2022, the rules that applied for 2014-2019 are scheduled to return (although this could change if Congress amends the ACA again). Under these rules, the premium tax credit is only for low and moderate income people whose household income is between 100% and 400% of the federal poverty level (FPL). Individuals whose income is within these limits are required to pay no more than 9.83% of their household income for ACA coverage, based on the benchmark silver plan in their area. If you're income is over the 400% of FPL limit, you get no tax credit at all.

400% of the federal poverty level is a relatively modest income as shown in the following chart:

Household Size

400 percent of Federal Poverty Level (2021)

1

$51,040

2

68,960

3

86,880

4

104,800

5

$122,720

For each additional person, add

$17,920

For example, starting in 2002 a family of four will not qualify for any ACA premium tax credit if their MAGI is $104,801 or more. If they obtain ACA coverage, they will have to pay the full amount out of their own pocket, even if it amounts to far more than 9.83% of their income.

Determining the Amount of the Credit

How much is the credit? It depends on your household size, income, and the cost of health insurance where you live. You can get an idea of how big a credit you'll qualify for by using the Kaiser Foundation Health Insurance Marketplace Calculator. If you plug in your income numbers, the calculator will give you an estimate of your subsidy.

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