Approximately, six million out of seven million people who are expected to purchase health coverage from the new insurance marketplaces throughout the next year are going to be classified as low and middle income.
This will allow them to get tax credits that will drastically decrease their costs. When the marketplace open enrollment period under the new health care law came into effect, the tax credits were already in place for eligible residents who earn between 100 and 400% of the federal poverty level.
For 2013, this is regarding individuals who make $11,900 to $46,000, two person families earning between $19,530 and $78,120, and four person families who earn between $23,550 and $94,200.
This credit eligibility is based on the current federal poverty guidelines until the 2014 guidelines are released. Legal immigrants with incomes under the poverty line are also eligible for the credits even if they are not eligible for Medicaid.
Tax credits will cost taxpayers $19 billion
Currently, it does not appear that Obamacare will be defunded yet if it were to happen the law’s tax credits and other provisions will still carry on. This is because not all of the funding for health care is reliant on money that is made available during the annual appropriations process.
In 2014, it has been estimated by the Congressional Budget Office that tax credits will cost taxpayers $16 billion directly and $3 billion indirectly.
The size of the tax credit a person receives under Obamacare could be a few hundred dollars or it could be more than $10,000. It all depends on the family size, income, and the cost of the coverage for the individual. You can use the tax.
Once you sign up for a marketplace health plan the tax credit will go directly to the insurance company and will be applied to the plan member’s monthly premiums in 2014. However, remember, that majority of Americans will need the tax credit but will not be eligible to receive it. See the Health Care Eligibility Calculator
People who have access to job-based coverage will only be able to get the tax credit if the health insurance that their employer is providing does not cover 60% of their medical costs or if it is more than 9.5% of their annual wages. The tax credits were put into place to keep people from spending a specific percentage of their income on health insurance.
Each state insurance marketplace will divide health plans into four color-coded categories, which will show which portion of medical expenses will be covered. For example, Bronze plans will cover 60% of medical expenses, Silver Plans 70%, Gold Plans 80% and Platinum Plans 90%.
How It’s supposed to work
The tax credit amount that a person receives is going to be based on the Silver plan costs in their area. For example, if a 42-year-old man has a projected 2014 income of $28,725 he would not have to pay more than 8.05% of his income to enroll in the plan.
People who have lower incomes will have to spend smaller shares of their income on their health coverage which means their tax credits will be more than those who have higher incomes. For example, people who earn up to 133% of the federal poverty level will pay no more than 2% of their income for the plan. However, those earning 150% to 200% would have to pay no more than 4% to 6.2% for the same plan.
Keep in mind these tax credits are only available for coverage that comes from the marketplaces. It can be applied to any plan yet the amount of the credit is based on the benchmark plan.
Additionally, if your family’s size changes during the year the tax credit that was issued, you will have to pay back any of the excess credit that was received. However, to avoid being stuck paying a lot of money back you should call your insurer the moment your family size or income changes.