Health insurance subsidies offer you the opportunity to get a discount on your monthly premium, but do you know how they work?
With the cost of health insurance premiums rising, health insurance is becoming more unaffordable. However, if your income qualifies, you can get health insurance at a more affordable cost.
What is a subsidy?
A health insurance subsidy, or an Advance Premium Tax Credit (APTC) is an amount of money applied to your monthly premium. It is based on your yearly income and is provided through your state or the federal government.
When you apply for insurance, the marketplace will send the insurance company so you’ll pay less each month. This was created to make insurance more affordable. However, not everyone qualifies, and if you do, you are not required to apply it to your health insurance premium.
How do I qualify for a subsidy?
To qualify for assistance, you must meet specific income requirements. The first is your income. Your income has to be at or greater than 400% of the federal poverty level. In 2024, this number is around $14,850 for an individual and $30,000 for a family of 4. Please note, that these limits can vary depending on the state you live in.
Other qualifications for an APTC include the cost of available insurance coverage, where you live, your zip code, and family size. When you apply for health insurance, you may be asked to provide documents as proof of your income.
You must also file a tax return to qualify for a subsidy. Since this is based on your income, your income will be compared to what you reported on your health insurance application to confirm you qualified for these savings.
If you don’t report your APTC with your tax return (reconcile) after two consecutive years starting in 2024, your subsidy will be automatically terminated.
How does it work?
At the end of the year, you will be given a 1095A document from the marketplace. This will be used by your tax preparer to report your income and the total APTC that was applied to your insurance premiums.
Once you submit your tax return with the information included in the 1095A form, your taxes will be reviewed along with IRS form 8962 to reconcile the subsidy you were granted during the year.
If there are any major changes compared to the original application, you may have to pay back some or all of the subsidy that was applied to your health insurance premiums.
Why get a subsidy?
Getting a subsidy can be helpful to cut the costs of your health insurance premium. It can help you save money monthly, and if you qualify, it can allow you to add on additional coverage such as dental and vision or supplemental coverage for accidents and critical illness.
What if I underestimate my income?
If you underestimate your income on your application, you will have to pay back part of your subsidy when you file your taxes. Usually, there is a limit to how much you are required to pay back in addition to your tax bracket. Here is a calculator to help you estimate your potential bill.
What if I don’t get a subsidy?
Not getting a subsidy still allows you to enroll in health insurance, but you have to pay the full price of the plan. Additionally, you wouldn’t be required to file a tax return or provide 1095A tax information, so it makes the enrollment process easier.
Since subsidies are only granted to individuals and families of a certain income, if you fall outside of those income requirements, you won’t qualify, even if you need extra help.
If your state offers it, you can enroll in a private plan, or purchase a plan with a higher deductible, which will lower the overall cost of your monthly premium.
All in all, subsidies can be a great way to save money on health insurance. However, they are only for those who qualify, and since they are based on your income. Additionally, you have to make sure you keep your income updated throughout the year to avoid having to pay back any costs at the end of year.