Guide to Understanding Obamacare’s Tax Subsidies:

Tax credits play a vital role in the future of the Affordable Care Act (ACA).  Tax credits will be made available to people who are not provided health insurance by their employer or who are ineligible to gain it from government run programs.  These credits will be used to help them pay for their insurance coverage.  People applying for tax credits must be US citizens and have modified adjusted gross household incomes between 100-400 percent of the federal poverty level.  Furthermore, the individual applying for the tax subsidy must be a taxpayer.

Tax credits will be paid on a monthly basis and tax credit eligibility will be determined annually.  The tax credit must be claimed on an individual’s annual income tax return.  Since tax credit eligibility is determined prior to annual tax returns, an individual may see changes with their tax subsidies based off of increases or decreases in their income throughout the year.  If a person earns more annually than they projected and they receive a higher tax credit than they deserved, they will be forced to pay back the credit.  If an individual earns less than they projected, they will receive a refund for their tax subsidy.  If one’s final income is greater than 400 percent of the federal poverty level (even by only a dollar), they must pay back the entire subsidy.

If you are interested in learning more about tax subsidies and health care reform, please refer to the article, “Implementing Health reform: The Premium Tax Credit Final Rule.”


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