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Small Business Employee Benefits and HR Blog

Federal Premium Tax Credit - Employer Coverage FAQs

As of 2014, massive premium tax credits will be available to certain Americans who purchase a plan through the new health insurance exchanges. Eligibility for the premium tax credits is pretty straight forward if employees are uninsured or purchase health insurance their own - it is based on income and household size. However, many employees how have access to employer coverage - either through their job or a family member's - have questions about if they are eligible for the tax credits. These FAQs help answer some of those questions.

FAQs premium tax credits

What are the Federal Premium Tax Credits?

The federal premium tax credits are available to eligible employees who buy individual coverage in a state health insurance exchange ("marketplace"). The tax credits may reduce the amount they pay monthly for coverage. The premium tax credit is available to those whose 2013 household income is up to $45,960 for an individual and $94,200 for a family of four (see chart below). To be eligible employees cannot have access to traditional employer coverage or government health coverage. The government bases the tax credit on the premium for the second lowest–cost Silver plan in the Marketplace, although a person can select any metallic level plan.

 

Percent of FPL (2013)

 

100%

133%

150%

200%

300%

400%

Premium as Percent of Income

0% - 2%

0% - 3%

4%

6.3%

9.5%

9.5%

Family Size

 

 

 

 

 

 

 1

11,490

15,282

17,235

22,980

34,470

45,960

 2

15,510

 20,628

23,265

  31,020

46,530

62,040

 3

19,530

 25,975

29,295

  39,060

58,590

78,120

 4

23,550

 31,322

35,325

  47,100

70,650

94,200

How Much are the Federal Premium Tax Credits?

The amount of the premium tax credit varies on a sliding scale, depending on income. The premium tax credit acts as a cap on the amount employees will pay out-of-pocket for the insurance premium. Additional cost-sharing subsidies are available for those Silver enrollees whose household income ranges up to $28,725 (up to $58,875 for a family of four).

To estimate the federal premium tax credit employees may be eligible for, see these premium tax credit charts or use a premium tax credit calculator (like this one).

What if I Have Access to Employer Coverage?

Employees who have access to employer coverage that meets federal minimum value and affordability standards are not eligible to receive a premium tax credit. This includes access to employer coverage through their job, or through a spouse's job. This is where it gets a little more complicated. Here's what you need to know:

  • If an employer offers coverage to its employees, dependents and spouses, then no one in the family is eligible for the premium tax credit, assuming coverage is minimum value and "affordable" (affordability is based on just the single-only coverage premium - not how much is required to pay for spouse/dependent coverage).

  • If an employer offers coverage to its employees only (coverage that is minimum value and affordable) then the spouse and dependents may be eligible for a premium tax credit through coverage on the Marketplace.

  • If an employer offers coverage to its employees and dependent children only (that is minimum value and affordable), then the spouse may be eligible for a premium tax credit through coverage on the Marketplace.

What if I Don't Elect the Coverage Offered by My Employer?

The key question is whether coverage is offered to you. If the coverage that is offered to you is minimum value and affordable, then you will not be eligible for a premium tax credit -- even if you don't elect the coverage.

If you're offered employer coverage you can still buy an individual plan on the Marketplace, but you won't be eligible for the premium tax credit (again, assuming the coverage offered is minimum value and affordable).

What is Minimum Value?

An employer plan meets minimum value if the plan pays at least 60 percent of covered health care expenses for a typical population. 

What is Affordable Coverage?

An employer plan is defined as affordable if an employee does not pay more than 9.5% of their household income for the lowest-cost, self-only coverage premium. 

What If I am Eligible for a Government Program?

If employees qualify for a program like Medicare, Medicaid, TRICARE, Children’s Health Insurance Program (CHIP) or other programs, they are not be eligible for a premium tax credit on the Marketplaces. In some states, Medicaid eligibility is expanding to many more individuals. The new health insurance Marketplaces will help individuals determine eligibility for these government programs and will direct eligible applicants to these sites.

What questions do you have about the federal premium tax credit and employer coverage? Leave a comment!

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