ELI5: Tax credits for Healthcare

Submitted by nsstatic t3_z73bam in personalfinance

First of all, I just want to say that I've been reading up on this on my own and I still can't figure it out, so while I recognize that there is plenty of literature on the subject, I really do need someone to break it down for me.

I changed jobs this year and am no longer eligible for health insurance through my employer, so I turned to the Marketplace. It's a single-earner household at the moment, so income is ~$40,000 for a family of three. The Marketplace says that we're eligible for a $1,100 credit towards our monthly insurance payment.

My question is: Does that mean that I would be receiving $1,100 x 12 months (13,200) for my refund next year if I didn't take the tax credit for health insurance? I'm guessing not, and that there's an element that I'm missing, because last year I earned even less ($36,000) and I received $6,300 for my refund.

Help my brain, please.

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Zphr t1_iy4h3ph wrote

No. It means the gov will cover up to $1,100 of your monthly premium for health insurance in 2023 as long as you are eligible for Marketplace assistance. If you elect to pay the full premium yourself, then yes you can get the full amount refunded as a reimbursement when you file your return in 2024.

If you don't buy Marketplace insurance, then you get nothing.

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Ii10Ol1ti1l t1_iy4h837 wrote

The Marketplace tax credit to help pay insurance premiums is not directly related to your income tax return, or the refund you get after filing a return unless something happens and you end up receiving more of the tax credit than you were entitled to.

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shadow_chance t1_iy5c57k wrote

You're never going to get $1,100 sent to you. The cost of your ACA plan is just reduced by that amount and the gov picks up the cost in the background.

ACA subsidies have nothing to do with your tax refund.

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AllTheyEatIsLettuce t1_iy5mysf wrote

>Does that mean that I would be receiving $1,100 x 12 months (13,200) for my refund next year if I didn't take the tax credit for health insurance?

Not exactly. But maybe ...

When you file your Federal tax return for 2022, you'll "reconcile" all of this "APTC" monthly discounting and insurance seller premium paying from your pockets of your money all year according to a specific formula.

Three variables in that formula matter:

  1. How much of a discount you were originally eligible for ($13,200) that was never paid to the insurance seller by the Federal government for the coverage product you bought. This amount is determined by your estimated income for 2022. That's why it's called an "Advance Premium Tax Credit." The Federal government can advance the insurance seller $13,200/yr. in public revenue (general income tax revenue) to pay it for a coverage product premium you buy.

  2. How much you actually ended up being eligible for during the year, which is based on your actual earnings in 2022 as well as household composition (how many people are dependent upon the actual income), and how many people were actually enrolled in the coverage product, their ages, and their zip code. This amount, your "Premium Tax Credit, may or may not be the same amount as your original "APTC." Because nobody is guessing anymore. Your actual earnings are available to use for calculating your monthly discount.

  3. The "cost" of the "second-lowest cost silver plan" available for purchase in your zip code.

<Math_here> ultimately determines how much your Federal tax obligation is reduced (yea, a refund!) or increased (oh no, owe taxes?!?) and according to the variables.

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