Texas Tech University Health Sciences Center
The ACA and Health Insurance Tax Credits

The ACA and Health Insurance Tax Credits

ceo_minuteIt’s that time of year when people are preparing to file tax returns.  The annual activity that provides fodder for the comedians and sometimes a tad of anxiety for the rest of us.  Specifically, let’s talk taxes and the Affordable Care Act (ACA)
First, a couple of familiar things about the ACA:
  •   We all have to have health insurance or pay a fine.
  •  Individuals at certain income levels can receive a tax credit to offset premiums for health insurance purchased during 2014. 
Even though most readers will not qualify for a premium tax credit (we are blessed in that our employer provides us with excellent health insurance), those of us in health care should be familiar with the process in order to be conversant with others. Maybe you will have the opportunity to explain this process to one of our patients or to someone else who needs the information. It is a nice achievement to help someone navigate the complicated world of health insurance.
Before we launch into the discussion, it is worth recalling that a tax deduction is a qualifying expense that reduces your taxable income and a tax credit is an amount subtracted from your tax liabilities (non-taxable income.) So, a tax credit is a much more desirable thing, because a $100 tax credit reduces taxes, on a dollar-for-dollar basis, by $100.  And, with ACA we are talking about tax credits.
Who is eligible for a premium credit? 
Basically, one is eligible if he or she bought health insurance through the Marketplace, or Exchange, doesn’t have coverage through an employer or government plan, is at a certain income level, doesn’t file a Married Filing Separately tax return (with some exceptions), and isn’t claimed as a dependent by another person.
When individuals have met the above-criteria and wish to access the premium tax credit, they have a choice of getting the credit immediately, which means having the payment sent to their insurance company, or they can wait until tax return time and claim the credit then.  
Those who choose to have advance credit payments sent to their insurer must file a federal income tax return, even if otherwise not required to do so, and complete Form 8962 Premium Tax Credit to reconcile any advance credit payments with the premium tax credit. If the actual amount paid is less than the premium tax credit, the person will get the difference as a higher refund or lower tax due. If the advance credit payments paid to the insurer are more than the actual credit, the person will need to pay the difference as part of their tax return.  Where does a person get all of these numbers?  The IRS will send out IRS Form 1095-A, a Health Insurance Marketplace Statement, showing advance payments of the premium tax credit in 2014 made towards the year’s premiums.
This column is a bit technical and, as I previously mentioned, outside of what most readers will deal with personally. However, my intent is to illuminate for us in health care, the process by which many Americans will attain and afford health insurance. Finally,  I will remind you of the quote from genius Albert Einstein who said, "The hardest thing in the world to understand is the income tax."