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Financial Planning / Tax Strategies
|Subject: Obamacare premium credits & 1040?||Date: 9/22/2013 1:17 PM|
|Author: WendyBG||Number: 119188 of 124790|
The Affordable Care Act (ACA or Obamacare) selection exchanges are due to open on October 1, only a week from now. Each state's insurance department manages its own state health insurance exchange.
The ACA will not affect people who receive health insurance from their employers or the government (e.g. Medicare). The ACA affects people who will buy individual health insurance from private insurance companies.
The ACA is designed to provide affordable health insurance to low-income individuals by subsidizing the premiums through premium credits (tax refunds even for those who don't owe tax).
Like so many government programs, the eligibility rules are complex.
My question for today was:
1. What is income? Does it include distributions from retirement accounts, annuities, etc. or does it only include earned income, dividends, interest, etc.?
2. What is the level of subsidy?
Here are the answers:
Federation of American Scientists
Congressional Research Service
Health Insurance Premium Credits in the Patient Protection and Affordable Care Act
Specialist in Health Care Financing
Specialist in Social Policy
July 31, 2013
New federal tax credits were authorized in the Patient Protection and Affordable Care Act (ACA,
P.L. 111-148, as amended), to help certain individuals pay for health insurance coverage,
beginning in 2014. The tax credits will go toward covering premiums for health insurance offered
through exchanges—marketplaces offering private health plans. ACA also establishes subsidies to
reduce cost-sharing expenses. ...
The new premium credits established under ACA will be advanceable and refundable, meaning
taxpayers need not wait until the end of the tax year in order to benefit from the credit, and may
claim the full credit amount even if they have little or no federal income tax liability. Although
the premium credits will not be available until 2014, the examples provided in this report estimate
premium credit amounts by income levels and age, if the credits were available in 2013.
Under ACA, the amount received in premium cred
its is based on income tax returns. These
amounts are reconciled in the next year and can result in overpayment of premium credits if
income increases, which must be repaid to the federal government. ACA limited the amount of
In addition to premium credits, ACA authorized new cost-sharing subsidies. Certain premium
credit recipients will also be eligible for reductions in their annual cost-sharing limits. Moreover,
certain low-income individuals will receive additional subsidies in the form of reduced cost-
sharing requirements (e.g., lower copayments). ...
Given that exchanges are designed specifically to offer insurance options to individuals and small
businesses, exchanges must be structured to assist these two different types of “customers.”
States, therefore, must establish an exchange to serve individuals and another to serve small
businesses (“SHOP exchanges”). ACA gives states the option to merge both exchanges and
operate it under one structure...
Certain enrollees in the
exchanges will be eligible for premium assistance in the form
of federal tax credits. Since individuals who are eligible for employer-provided insurance are
eligible for the premium tax credits (with except
ions), such credits will not be provided through
the SHOP exchanges. The premium credit will
be an advanceable, refundable tax credit,
meaning taxpayers need not wait until the end of the tax year in order to benefit from the credit, and may
claim the full credit amount even if they have little or no federal income tax liability...
individual Eligibility for Premium Credits
ACA specifies that premium credits will be available to “applicable taxpayers” in a “coverage month” beginning in 2014.
applicable taxpayer is an individual who
• is part of a tax-filing unit;
• is enrolled in an exchange plan; and
• has household income at or above 100% of the federal poverty level (FPL), but not more than 400% FPL.
A coverage month refers to a month in which the applicable taxpayer paid for coverage offered through an exchange, not including any month in which the taxpayer was eligible for “minimum essential coverage” with exceptions.
These eligibility criteria are discussed in greater detail below.
Household Income Is 100%-400% of Federal Poverty Level
To be eligible for premium credits, individuals
must have “household income” within statutorily
defined guidelines based on the federal poverty level (FPL).
For purposes of premium credit eligibility, household income is measured according to the definition for “modified adjusted gross
An individual whose MAGI is at or above 100% FPL up to and including
400% FPL may be eligible to receive premium credits, beginning in 2014...
In §2002(a) and §1401(a) of ACA, household income is defined to be MAGI, in compliance with the Internal Revenue Code (IRC). Under the IRC, gross income is total income minus certain exclusions (e.g., public assistance payments, employer contributions to health insurance payments). From gross income, adjusted gross income (AGI) is
calculated to reflect a number of deductions, including trade and business deductions, losses from sale of property, and
alimony payments. MAGI is defined as AGI plus certain foreign earned income and tax-exempt interest. However, for
premium credit eligibility purposes, the definition of MAGI will also include nontaxable Social Security benefits (as
amended by P.L. 112-56). For additional discussion about
the use of MAGI with respect to ACA premium credits, see
CRS Report R41997, Definition of Income for Certain Medicaid
Provisions and Premium Credits in ACA. ...
ACA includes provisions to expand Medicaid for individuals with income up to 133% FPL (with a 5% income disregard). If a state chooses to undertake the ACA Medicaid expansion, eligibility for premium credits would begin above that income level. ...
Not Eligible for “Minimum Essential Coverage”
To receive a premium credit, an individual may
for “minimum essential coverage,”
with exceptions (described below). ACA broadly
defines minimum essential coverage to include
Medicare Part A, Medicaid, the State Children’s Health Insurance Program (CHIP), Tricare,
Tricare for Life, a health care program administered by the Department of Veterans Affairs (VA),
the Peace Corps program, any government plan (local, state, federal) including the
Federal Employees Health Benefits Program (FEHBP
), any plan established by an Indian tribal
government, any plan offered in the individual health insurance market, any employer-sponsored
plan, any grandfathered health plan,
and any other coverage (such as a state high risk pool)
recognized by the HHS Secretary.... [end quote]
There is a lot more.
Eligibility for a premium credit (tax rebate to help defray the cost of the insurance) depends upon the Modified Adjusted Gross Income.
For purposes of the premium tax credit, your household income is your modified adjusted gross income plus that of every other individual in your family for whom you can properly claim a personal exemption deduction and who is required to file a federal income tax return. Modified adjusted gross income is the adjusted gross income on your federal income tax return plus any excluded foreign income, nontaxable Social Security benefits (including tier 1 railroad retirement benefits), and tax-exempt interest received or accrued during the taxable year. It does not include Supplemental Security Income (SSI). [end quote]
I would like to ask exactly which line of Form 1040 shows the Modified Adjusted Gross Income for the ACA premium credit eligibility. Also please show which line of Form 1040A, since many people who will qualify for the premium credit will file Form 1040A. After 2 hours of research I haven't found it.
I hope that someone can tell us which line on the Form 1040 shows the MAGI for purposes of the ACA.
Wendy (cross-posted to METAR and LBYM Boards)
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