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Obamacare Tax Credits and Subsidies

ACA Tax Credits and Subsidies

Premium Tax Credits for You and Your Family

As part of Obamacare, the federal government provides discounts for health insurance to eligible individuals and families. The tax assistant program, called premium tax credits, help many people buy more affordable individual or family health insurance coverage through the new state Health Insurance Marketplaces.

The health insurance tax credits are "advanced-payable" meaning they can be applied toward your ACA_tax_credits_subsidiespremium when you purchase health insurance coverage.

Tip: The premium tax credits provide significant savings. In 2014, 87% of people who purchased a health plan through the Marketplace received a discount, paying only $82/month on average.

You are eligible for a premium tax credit if you meet certain income requirements and do not have access to affordable health insurance through an employer or government program such as Medicaid or Medicare.

The tax credits are available to households with income up to 400% of the federal poverty line (FPL). As the following chart shows, this means households earning up to $46,680 for an individual in 2014, or $95,400 for a family of four, qualify.

The premium tax credits act as a cap on how much you pay for health insurance. The insurance premium is capped on a sliding scale between 2% -9.6% of income, depending on your income. For example, as the chart above shows, if you make $23,340 a year (200% FPL), the maximum amount you will pay for health insurance is 6.34% of your income which is $1,480/year ($123/month).

Remember, the premium tax credits are only available when you purchase individual or family health insurance available on your state’s Health Insurance Marketplace.

Cost Sharing Subsidies

Under the Affordable Care Act, cost sharing subsidies, or cost sharing reductions (CSRs), are discounts for lower-income families to help with out-of-pocket medical expenses.

The cost sharing subsidies are designed to help individuals and families pay for their deductible, co-insurance, and co-payments. The cost sharing subsidies are available in addition to the premium tax credits, which help eligible individuals pay for their monthly health insurance premium.

The cost sharing subsidies essentially allow individuals and families to pay for a standard silver plan, but get richer benefits.

Who Qualifies for a Cost Sharing Subsidy?

A cost sharing subsidy is available to households who:

  • Have an income between 100% and 250% of the federal poverty line (FPL). This is equivalent to an individual earning $29,175 in 2014, or a family of four earning $49,475.

  • Purchased a “silver” health plan from their state’s Health Insurance Marketplace.

  • Do not have access to affordable health insurance through work or a government program.

Those who are members of a federally recognized tribe are also eligible for cost sharing subsidies.

How Much Are the Cost Sharing Subsidies?

The cost sharing subsidies reduce the amount a family pays for out-of-pocket expenses and are based on household income and composition.

  • A family of four whose income is between 100% and 150% of the federal poverty level ($23,850 to $35,775) will be responsible for paying 6% of covered expenses out-of-pocket - compared with the 30% without cost sharing subsidies.

  • A family with an income between 150% and 200% of the poverty level ($35,775 to $47,700) will be responsible for 13% of expenses.

  • A family with an income between 200% and 250% of the poverty level ($47,700 to $59,625) will be responsible for 27% of expenses.

Small Business Health Care Tax Credits

As part of Obamacare, tax assistance is available to small businesses to purchase coverage for employees. The new small business health care tax credit is available to qualifying small businesses for up to two consecutive years.

Currently, the tax credit is worth up to 50% of a business’s contribution toward employees' premium costs (up to 35% for tax-exempt employers). The tax credit is highest for small businesses with fewer than 10 employees who are paid an average of $25,000 or less. The smaller the business, the bigger the credit.

To be eligible for the small business health care tax credit you must meet these three criteria:

  1. Be an employer with fewer than 25 full-time equivalent (FTE) employees, and

  2. Pay an average wage of less than $50,000 a year per employee, and

  3. Pay at least half (50%) of employee health insurance premiums (for full-time employees only)

To claim the credit, small businesses use Form 8941, Credit for Small Employer Health Insurance Premiums.

Guide to Health Reform's Tax Credits