Thanks to new regulations adopted by the IRS in October 2022, more individuals are eligible to receive subsidies for purchasing health insurance through government health insurance exchanges starting in 2023.
For example, suppose you are reviewing your employer's open-enrollment health insurance options over the next month or two. In that case, you may want to consider whether your family may qualify for subsidies provided through the federal Premium Tax Credit, which may lower your health insurance costs.
Federal health insurance subsidies cover a portion of your monthly premiums and are paid directly to your health insurance company, but only if you purchase the insurance through a government-established health care exchange. These exchanges offer various health insurance plans (e.g., Blue Cross, Kaiser, Anthem, etc.) Additional information can be found here: https://www.healthcare.gov/marketplace-in-your-state/.
The amount of your subsidy is based on your income. The lower your income, the higher your subsidy.
The subsidies are also referred to as the Advanced Premium Tax Credit (APTC) or just the Premium Tax Credit (PTC). They are tax credits because the subsidies you receive must be reconciled when you file your annual income tax return.
If your income was lower than you estimated when you purchased your insurance through the exchange, you are entitled to claim an additional Premium Tax Credit on your income tax return.
Conversely, if your income was higher than you estimated when you purchased your insurance, you may have to pay back some of the subsidies you received.
Individuals generally are not allowed a PTC if they are eligible for affordable employer-sponsored health care coverage. However, under the IRS's new rules, coverage is reasonable for an employee if the portion of the premiums that the employee must pay for family coverage (the employee, spouse, and eligible members of the household) are equal to or less than household income multiplied by the Required Contribution Percentage (9.61% in 2022 and 9.12% in 2023).
Before the IRS's new regulations were issued, coverage was deemed affordable for the entire family if the portion of the premiums that the employee must pay for self-only coverage were equal to or less than household income multiplied by the Required Contribution Percentage. Unfortunately, this meant that many families did not qualify for the subsidies.
Because the cost of family coverage is more expensive than the cost of self-only coverage, more employees will now find that their own coverage offered by their employer is affordable. Still, the employer's health insurance coverage is not affordable for their spouse and dependents. Therefore, this new rule will allow spouses and dependents to receive subsidies if they purchase their health insurance separately on an exchange.
The marriage of health insurance rules and tax rules can become very complicated. So don't hesitate to contact our office for an appointment if you want to discuss the tax consequences of receiving these Premium Tax Credits for purchasing health insurance through an exchange.