Talking Taxes: ACA Tax Credits

Talking Taxes: ACA Tax Credits


woman with question mark on a blackboard

In the last article we looked at the Health Insurance mandates and how the penalties apply when there are gaps in coverage which is a common problem for healthcare Travelers. In this article, we will look at the mechanics of the ACA tax credits that are available to certain taxpayers who use the exchanges.

The tax credits are designed to offset health insurance premiums of policies procured through the exchanges or through a private source in which the same exchange policies are purchased. The credit is prospectively granted based on anticipated income but retrospectively adjusted on the tax return for that year.

The Credit

Eligibility for the credit is based on income reported on the previous year’s tax return. When you file your 2014 tax return, an additional form will be used to calculate the amount of credit that you are eligible for to offset 2015 health insurance premiums due to exchange based policies. This formula then goes through two steps: 1) your income on the 2014 return must be below 400% of the Federal Poverty Line and 2) your insurance premiums must exceed 9.5% of your income. In essence, the ACA is a 9.5% tax on earnings per the landmark Supreme Court ruling.

The Payback

There is another calculation going on in the background. Since the credit for 2015 is based on the income reported on the 2014 tax return, the income you report on the 2015 tax return will be used to reconcile the credit that you received. If your income is higher in 2015 than the 2014 baseline year, you will pay back the excess credit in the form of an additional tax on your 2015 tax return. If your income is lower than the 2014 baseline year, you will receive an additional credit which will be applied to the 2015 tax return.

See Saw

This seesaw of credits and paybacks adds another layer of complexity to annual tax return when we one holds and exchange based health insurance policy. Some taxpayers will be required to pay back a significant amount of credits that they received in the previous year. To illustrate, assume a traveler has difficulty finding work in 2014 and is eligible for credit. In 2015, they work a full year. On the 2015 tax return, a portion of the credit (or all) will be charged as an additional tax. If the refund is not large enough to absorb this additional tax, the traveler will have an amount due on the return. As you can see, things might get pretty messy.


Would you like to learn more?

This topic, along with many other educational sessions and exhibits all about traveling as a healthcare professional, will be presented at the Travelers Conference in Las Vegas September 13-15,  2015.


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