Advanced Premium Tax Credit Details

Unlike basic tax credits, an advanced premium tax credit is sent directly to the health insurance company. Depending on how much you earn, everyone who qualifies for the said tax credit receives a discount on their health insurance premium. For example, if you were to pay $3,000, the government will send $500 to the health insurance company, meaning you will only pay $2,500.

The more money you earn, the less discount you will receive and vice versa. Given that the advanced premium tax credit is not applied immediately, you will need to apply for it in the Marketplace as you choose your preferred plan. The website automatically calculates the tax credit you will receive based on the information you will have provided.

You can either choose to apply for the advanced premium tax credit as a monthly discount or pay the whole amount and later claim the tax credit when you file for your taxes at the end of the financial year. To qualify for the advanced premium credit, you will need to meet the following conditions:

  • Your income should fall between 100% and 399% of the Federal poverty level income scale
  • You should not be eligible for alternative health insurance through government institutions such as Medicare or Medicaid
  • No one should claim you as a dependent when they file their tax returns
  • Your employer doesn't offer health insurance that pays at least 60% of the bills, and the said cover is not less than 9.5% of your earnings
  • You should file a joint tax return with your spouse if married
  • You must be a legal US citizen

Advanced Premium Tax Credit Example

Every financial year, the US department of health and human services reports on federal poverty levels. From this list, you will qualify for credit depending on the level at which your income lands. The income is ranked as a percentage starting from 100% to 400%.

Let's say Karen's annual income ranges from $38,625 to $51,500. This means she falls under the 200% poverty level scale as per the 2020 statistics. For the 200% group, she can only get a premium equal to 6.49% of her income. After calculations, Karen's maximum premium contribution will be $3,342.

This means she will have a premium credit of $11,658 because $15,000 - $3,342 = $11,658. In simplified terms, Karen will receive a $3,342 subsidiary on her health insurance. The government pays it, reducing the amount she will need to pay monthly.

History of Advanced Premium Tax Credit

On March 23, 2010, former President Barack Obama signed a bill under the patient protection and affordable act called Affordable Care. It is the law mentioned above that allowed legal American citizens to access the advanced credit premium tax. As stated in the New York Times, Obama explained why it was an enormous step in the country's growth when signing the bill.

He believed everyone deserves healthcare security despite their level of income. Republicans who voted against it had concerns that Americans would opt out of their previous insurance plans if the bill became law.

The Affordable Care Act allows low and average-income families to get subsidies for their private insurance premiums through the advanced premium tax credit and improved Medicaid. Even so, not everyone qualifies for the tax credit return, only those who genuinely need the assistance.