Did you buy health insurance on the government website? If so, you may be eligible for a federal tax credit that begins this month. The new “premium assistance credit” will help offset health insurance policy premiums when your income is within an established range.
The determination of your eligibility to receive the credit, and the amount you qualify for, is calculated on the website as you complete your insurance application. Once you select a plan, you choose how much of the credit (if any) to apply to your premium. If you elect to use some or all of the credit to offset the premium, that amount is paid directly to the insurance company. You pay the remaining premium out-of-pocket.
When you complete your 2014 tax return, you’ll calculate the actual credit you are eligible for. The difference between the actual amount and the amount advanced to the insurance company affects the tax on your return. For example, when the advance payments are more than the credit you actually qualify for, you’ll owe the difference. Depending on your income, the amount you have to pay back may be limited.
Instead of having the credit reduce your premium, you can decide to pay for your policy out-of-pocket throughout 2014, and claim the credit when you file your return. The credit is refundable, so you might receive a refund even if you owe no income tax.
Be aware of special rules. For instance, if you’re married, you must file a joint return to claim the premium assistance credit, and you cannot take the credit if someone can claim you as a dependent. In addition, you may not be eligible if you purchase health insurance through a plan sponsored by your employer.
Because the credit is based on income, any changes in your financial situation during the year can affect the amount you’re eligible to receive. We urge you to contact us to schedule regular tax reviews throughout 2014.