Nearly 10 million people are eligible for generous subsidies towards comprehensive Affordable Care Act (ACA or Obamacare) health insurance, but they never apply. Don’t be one of those people.
For 2021 and 2022, you qualify for tax credits if the price of the benchmark plan (second-cheapest silver plan area) exceeds a percent of your annual income (0% to 8.5%).
Previously, eligibility for subsidies required you to spend more on coverage before you got help.
You could also get help paying for deductibles and copays if you qualify for cost sharing reductions. Your income (100% to 250% of the federal poverty level) determines your eligibility.
In all, more than 85% of ACA members receive tax credits alone that cover around 85% of their premiums, or slightly over $500 a month.
Your health insurance subsidy is based on your income for the current year, so you’ll have to estimate it. In doing that, don’t rely solely on last year’s total. Things change.
Since you can never be sure what your total income will be at the end of the year, be realistic about your prospects to earn more or less than last year. Use your last year’s tax return as a basis, and specifically, look at income numbers after deductions on lines 37 and 21 on your 1040 or line 4 of your 1040EZ. If you are part of a household, you must include income from your spouse and all your dependents, even if they don’t live with you.
Know up front that if you are among the seven million who don’t file an income tax return, you don’t qualify for any subsidies.
What Is a Health Insurance Premium Subsidy?
The potentially large discount on monthly ACA premiums based on your income is called a premium subsidy, or premium tax credit.
Premiums are the monthly payments you make to stay enrolled in an insurance plan. You have to ante up to stay insured.
By contrast, ACA subsidies are discounts paid from the federal government to your health insurer to lower your out-of-pocket maximums for deductibles, coinsurance, and copayments. They are reserved for members making no more than 250% of the national poverty level — for example, under $31,225 for individuals, $53,325 for families of three.
Where Can I See If I Qualify for Subsidies?
You can easily calculate what sort of subsidies you might qualify for with our ACA subsidy calculator. The calculator requires your ZIP code, household size, and income. (You may read this as annual household income, modified adjusted gross income, or yearly income – they’re all very similar.)
Your subsidy is a single amount that applies across all plans, even though different plans will charge different monthly premiums.
Once you input all your information, your premium subsidy, if any, will pop up. It is calculated automatically, and you don’t have to do anything further. When you sign up for a specific insurance plan, the subsidy will be sent monthly to your insurance company for the entire year, unless you drop the plan.
What if My Estimated Income Is Wrong?
If it turns out that you underestimated your income, you’ll have to pay back some or all of the subsidies you got based on your low estimate. This payback will occur when you file your taxes the following year.
The government calls this a “clawback”. Normally, depending on your income, you may not have to pay back all the money.
On the other hand, if you end up overestimating your income, you’ll receive the subsidies you deserve through your tax return either by lowering what you owe in income tax or as a refund.
For 2020, there is no clawback. The American Rescue Plan did away it for one year.
(% Federal Poverty Level)
|Maxmimum Amount |
to Repay for Individuals
to Repay for Families
|Less than 200%||$325||$650|
|Between 200% and 300%||$800||$1,600|
|Between 300% to 400%||$1,350||$2,700|