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Monday September 15, 2014

Washington News

Washington Hotline

ACA Premium Credit for Over 80%

Under the Affordable Care Act (ACA), individuals who have annual household income between 100% and 400% of the federal poverty rate are eligible for a premium tax credit. The credit may be claimed on a tax return or there is an advance credit option. Those who elect the advance credit option will benefit from a direct payment by the Department of Health and Human Services to the health insurance company.

The credit is based on estimated income reported by the individual. Taxpayers who receive a credit will reconcile that amount on their next annual tax return. If the individual has reported the wrong estimated income, it may be necessary to repay part of the premium tax credit.

The Department of Health and Human Services published a report on May 1 that outlined the results for 2014. The initial March 31 deadline for ACA enrollment was extended to April 19. In May of 2013, the Congressional Budget Office (CBO) estimated that there would be approximately six million individuals eligible for the credit. In February of 2014, the CBO changed that estimate to five million. Of the eight million who signed up by the April 1 deadline, 6.8 million are eligible for the credit.

There was a major increase in sign-ups during March and April. From March 1 through April 19, 3.8 million persons signed up. Those who signed up later exceeded the CBO estimate that 86% would be eligible for the premium credit.

Editor’s Note: The premium credits reduce the cost of health insurance for individuals with incomes in the 100% to 400% range of the federal poverty rate. There are four principal methods that will be used to offset the cost of the premium credit payments to health insurance companies. First, there is a 3.8% Medicare tax on passive income of upper-income persons. Second, there is a tax on medical devices. Third, there is a tax payable by health insurance companies. The second and third amounts are likely to be passed through to consumers through higher health insurance rates. Fourth, there are substantial reductions in Medicare spending. These four methods and other tax increases are designed to offset most of the cost of ACA credits.

Published May 2, 2014


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