Consider these factors before you decide how you want to receive your tax credits.
The Affordable Care Act was designed to make health insurance affordable for all Americans. One way the Affordable Care Act (ACA) attempts to do this is by offering tax credits to those who must purchase insurance through the government marketplace (who are not eligible for health insurance through their employer). These tax credits can be taken in a lump sum at the same time you would receive your tax refund, or you may be eligible to receive advanced premium tax credits, which allow you to receive your tax credits in monthly installments that lower the monthly premiums you pay for your insurance.
The first step to understanding how to use your ACA premium tax credits is understanding how the tax credit amounts are calculated. Tax Credits are calculated based on your income when you file your tax return for the year. However, when you apply for health insurance via the marketplace, you are asked to estimate your income for the following year. The way you answer this question will affect the Advanced Premium Tax Credits you are qualified to receive. This means the monthly payout that you may receive to cover all or part of the cost of your monthly premiums is based on an estimate of your actual income for the coverage year.
While for many people this estimate can be easily made, those who work part-time, who are students, or who are looking for work may not be able to adequately estimate their income. If you decide to take Advanced Premium Tax Credits, but are unable to confidently estimate your next year’s income, here are some things you should consider before opting to take your tax credits.
If you make more
If you make more than your estimated income, the amount of tax credit you’re eligible for may decrease. If you get a raise or find a new, higher paying job, be sure to indicate this in your application on the marketplace website. It’s possible to change your income level throughout the year as it becomes clearer to you how much you will be consistently making throughout the year. Be sure to use this feature to avoid having to pay back Advanced Premium Tax Credits come tax season.
If you make less
If you make less than you estimated you would on your original application, you may qualify for larger monthly tax credits. To receive these credits you must also update your application on the marketplace website.
Take only part of the credit
You have the option to take part of the credit each month rather than the whole thing. If you feel that estimating your income for the next year is not a feasible prospect, you may wish to only take part of the tax credit available to you. If you don’t end up using all of the tax credit that you’re eligible for based on your real income, you’ll receive leftover tax credits back with your tax refund.
For freelancers, part-timers, and those looking for work or for new work, the tax credit business can be a bit tricky. Keeping your application up to date with your current income can help to ensure that your Advanced Premium Tax Credits are being dispersed correctly and can help you from owing money back on your taxes. Don’t let the Affordable Care Act ins and outs confuse you. There are always insurance brokers available to help guide you through the health insurance process as well as the plans, tax credits, and other nuances of the Affordable Care Act.