How to Calculate Tax Credits and Subsidies for Health Insurance Sold on the Health Insurance Marketplace
Our ObamaCare calculator will help you calculate tax credits and subsidies for health insurance sold on the Health Insurance Marketplace. Use this quick health insurance tax credit guide to help you understand the process, or just use one of our ObamaCare subsidy calculators for a quick estimate on marketplace cost assistance. Cost assistance for individuals, families, and businesses is calculated automatically when you fill out an application on the Health Insurance Marketplace, however it’s good to understand how the process works yourself.
NOTE: We’ve created a page on Modified Adjusted Gross Income (MAGI) to help you understand the type of income used for cost assistance on the Marketplace. You can also see below for how MAGI works and how to apply that to tax credits.
Some Quick Tips on ObamaCare’s Cost Assistance Subsidies
Before you start Shopping For Health Insurance, make sure you understand the following quick tips about cost assistance under the Affordable Care Act.
• You’ll need to understand the Federal Poverty Guidelines, commonly called Federal Poverty Level (FPL), to know what type of cost assistance you are eligible for in 2015. You can find the current Federal Poverty Guidelines here.
• Cost assistance and exemptions are based on Modified Adjusted Gross Income (MAGI). MAGI is the income of your household (you and anyone you claim as a dependent) after deductions.
• Cost assistance is based on your projected income for 2015 and then adjusted for your actual income at the end of the year.
• Cost assistance is only available through the Health Insurance Marketplace.
• The marketplace is only open during open enrollment!
• All non-exempt Americans can use the marketplace to see if they qualify for cost assistance. However there are a few exceptions: If you are eligible for Medicare, you won’t use the marketplace. If you have access to qualifying employer based insurance, you can use the marketplace but can’t get cost assistance. If your state didn’t expand Medicaid, there may be other eligibly requirements for Medicaid beyond income.
• Cost assistance includes: Advanced Premium Tax Credits for those making between 100% and 400% FPL, Cost Sharing Reduction subsidies for those making between 100%-250% FPL, and Medicaid for those making less than 138% FPL in states that expanded Medicaid.
• As a rule of thumb if you make less than $46,680 as an individual or $95,400 you make less than 400% FPL and will qualify for some sort of assistance.
• Cost Sharing Reduction subsidies are only Offered On Silver Plans.
• Tax Credits cap the maximum premium you can pay. The amount is between 2%-9.5% of your MAGI for the cheapest Silver plan.
• Children can also get Medicaid cost assistance through CHIP.
• Tax credits can be paid in advance to lower your premium upfront or can be deducted from your Federal income taxes at the end of the year. If you didn’t take the full Tax Credit in advance, or you made less than you projected in 2014 and didn’t adjust your info in the marketplace, you can deduct the remaining amount on your Federal Income Taxes using Form 8962, Premium Tax Credit (PTC).
• If your income changes you should report it to healthcare.gov or your states exchange so they can adjust your cost assistance levels. This will avoid you paying too much or owing money on your year end taxes.
• If you have a plan from the previous year, it’s good practice to verify your plan and information before the next year starts. See more about verifying information and switching plans.
• For small business owners who are looking for information on small business tax credits, please see our page on using the Small Business Health Options Program (SHOP).
• Check out our ObamaCare subsidies page for more information on tax credits, out-of-pocket subsidies, and Medicaid and CHIP.
What if My Income Changes, Do I Have to Adjust Tax Credits or Cost Sharing Reduction Subsidies?
If your income changes you may have to pay back Tax Credits, or you may be eligible for a bigger refund as Tax Credits are refundable. Cost Sharing Reduction subsidies don’t have to be paid back if your income increases, but in some instances you may be eligible for a refund if your income was lower than projected. Almost everyone who got Tax Credits will have to report them on their Federal Income Taxes. You may want to check out our page on filing taxes under the Affordable Care Act to better understand your responsibility in regards to cost assistance.
ADVICE: It’s important to update your Marketplace account with any information that could affect cost assistance. This will help you get the right amount of assistance and avoid complications when you file your taxes. Expect to report your Tax Credits to the IRS in detail.
How to Calculate Premium Tax Credits and Subsidies
There are a few ways to calculate marketplace tax credits and subsidies.
1. Use the subsidy calculator below, or try one of the other subsidy calculators we provide.
2. Do it by hand. Below we give you the formula you need to calculate your cost assistance.
The ObamaCare Calculator: Calculating Subsidies
Use the subsidy calculator below to get an idea of what kind of cost assistance you are eligible for. Keep in mind the only way to get cost assistance is through your state’s Health Insurance Marketplace.
2015 Obamacare Subsidy Calculator Provided by: SubsidyCalculator.com
Other Subsidy Calculators
You can also use these other ObamaCareFacts.com approved ObamaCare Cost Assistance Calculators to get an idea of what kind of cost assistance you are eligible for.
• Use plan.expert to find out what plan makes sense for you and your family. This tool allows you to take projected medical expenses and prescription drug use into account. This tool works best if your state uses healthcare.gov as their marketplace.
• Use the Kaiser Calculator. This will give you an idea of what type of cost assistance you qualify for and give you an idea of what a plan will cost after cost assistance in your region.
• Use the ehealthinsurance.com subsidy calculator. This tool will help you to see if you qualify for cost assistance for 2015 and will give you the option to shop for quotes outside of the marketplace.
Please note that the ObamaCare Cost Calculators uses modified adjusted gross income and not total gross income or net income to figure out cost assistance and insurance cost estimates. Estimates tend to be based on the cheapest cost Silver plan in your region.
Also note that as little as a $1 difference in income can exclude you from receiving a subsidy.
Below is some helpful information from a free guide offered by www.zanebenefits.com, we have added notes and other information when appropriate.
Individual Health Insurance Tax Credits
The amount of your health insurance tax credit is based on the premium for the second lowest cost “silver plan” in your state’s individual Health Insurance Marketplace (Although you can apply Tax Credits to any marketplace plan and pay or save the adjusted amount).
The amount of the tax credit varies with income such that the premium you would have to pay for the second lowest cost silver plan is capped as a percentage of income (adjusted for household size), as follows:
Income Level Premium as a Percent of Income
Understanding MAGI and AGI can save you lots of money. For instance lowering your MAGI with a Health Savings Account (HSA) can increase the amount and type of cost assistance you qualify for. Lowering your MAGI can even help you save in other areas, like student loans too.
How to Calculate Your Health Insurance Tax Credit
Step 1- Calculate Your Modified Adjusted Gross Income (MAGI)
Step 2 – Use Your MAGI and Household Size to Determine if You are Eligible for a Tax credit
Be aware that if your income changes you’ll want to verify your information with Marketplace to avoid getting too much or too little cost assistance.
Step 1 – Calculate Your Modified Adjusted Gross Income (MAGI)
Modified Adjusted Gross Income or MAGI can be a little confusing. Please note that numbers below specifically are meant as examples to help you understand marketplace cost assistance and how HSA’s can help lower Modified AGI and are not necessarily current. Double check all thresholds before filing taxes.
Why Does MAGI Matter?
Modified Adjusted Gross Income is a measure used by the IRS to determine if a taxpayer is eligible to use certain deductions, credits, or retirement plans. “Modified Adjusted Gross Income” (not “Adjusted Gross Income”) will be used in determining eligibility for your health insurance tax credits. The IRS phases out the tax credit as your income increases. By adding MAGI factors back to your AGI, the IRS determines how much you really earned. Beginning in 2014, your MAGI determines whether you will be eligible for premium tax credits on the new Health Insurance Marketplaces
What is Adjusted Gross Income?
Generally, your Adjusted Gross Income (AGI) is your household’s income less various adjustments. Adjusted Gross Income is calculated before the itemized or standard deductions, exemptions and credits are taken into account.
What is Modified Adjusted Gross Income?
Generally, your Modified Adjusted Gross Income (MAGI) is the total of your house hold’s Adjusted Gross Income and any tax-exempt interest income you may have (these are the amounts on lines 37 and 8b of IRS from 1040).
Adjusted Gross Income (AGI, as defined by IRS)
+ Excluded foreign income
+ Tax exempt interest
+ Non-taxable Social Security benefits
Let’s talk about what income is counted under MAGI. Since MAGI includes AGI the list below comprises both MAGI and AGI. The list will help you understand what types of income count toward deductions that affect HSA’s and cost assistance, and which don’t.
Income Counted Under MAGI:
Wages, salaries, tips
Self-employment, business and farm income after deduction of business expenses (including depreciation and capital losses)
Interest (taxable and non taxable)
Social Security (SSA) income
Taxable state income tax refunds and credits
Portion of scholarships, awards or fellowship grants used for living expenses
IRA distributions (taxable amount only)
Pensions and annuities
Rental real estate income and royalties
Other income if taxable (such as, prizes, jury duty pay not given to employer, etc.)
MAGI Income Deductions:
Business/Self-employment expenses, include:
capital losses (limit of $3,000, or $1,500 if married filing separately, in a tax year),
rental/real estate losses,
partnership and S Corporations losses, and
Estate and trust loss
Educator expenses (limit of $250 per educator in a tax year)
Real estate mortgage investment loss
Business expenses of Reservists, Performing Artists, and Fee-Basis Government Officials
Health Savings Account Deduction (limit of $271/month for single filer, and $538/month for a family)
Moving Expenses (if moved in connection with new job)
Tax deductible part of self-employment tax
Self-employed SEP, SIMPLE and qualified plans
Self-employed health insurance deduction
Penalty on early withdrawal of savings
Student loan interest (limit of $2,500 in a tax year)
Tuition and fees (limit of $4,000 in a tax year)
Domestic production activities deduction (up to 9% of qualified production activities)
NOTE: For MAGI, alimony paid must be entered under the Miscellaneous Expense screen in the IES Worker Portal (for non-MAGI, enter alimony paid on Support Expenses screen). IES does not track annual caps for MAGI income deductions. Workers must ensure that deductions that exceed the annual caps are not entered. For example, if a teacher reports $50 per month in educator expenses from January through June, the cap of $250 will have been reached by May. Do not allow the expense for the remaining months in the calendar year.
Income Deductions Not Considered Under MAGI:
The following income deductions will no longer apply to MAGI groups:
$90 employment deduction for employed persons
the $30 plus 1/3 earned income exemption (EIE)
child care expenses
child support that was actually paid to someone not in the household
Income Not Counted Under MAGI
Child support income received
Supplemental Security Income (SSI)
Portion of scholarships, awards or fellowship grants used for education purposes
American Indian and Alaska Native (AI/AN) income derived from distributions, payments, ownership interests, real property usage rights, and student financial assistance provided under the Bureau of Indian Affairs education programs.
How to Calculate Your Gross Income (GI)
Your gross income is the money you earned through wages, interests, dividends, rental and royalty income, capital gains, business income, farm income, unemployment and alimony. This is the basis for your AGI calculation.
Gross income includes salary, interest earned, income from investments and basically any income you made through business, trade or investments.
How to Calculate Your Adjusted Gross Income (AGI)
Once you have gross income, you “adjust” it to calculate your AGI. You make adjustments by subtracting qualified deductions from your gross income.
Adjustments can include items like some contributions to IRAs, moving expenses, alimony paid, self-employment taxes, and student loan interest.
There are many free AGI calculators available online.
How to Calculate Your Modified Adjusted Gross Income (MAGI)
Once you have adjusted gross income, you “modify” it to calculate your MAGI. Specifically, Modified Adjusted Gross Income (MAGI) is calculated by adding back certain items to your Adjusted Gross Income including:
• Deductions for IRA contributions.
• Deductions for student loan interest or tuition.
• Excluded foreign income.
• Interest from EE (employee) savings bonds used to pay higher education expenses.
• Employer-paid adoption expenses.
• For most people, MAGI is the same as AGI.
Step 2 – Use Your MAGI and Household Size to Determine if You are Eligible for a Tax Credit
You can use the following table to figure out if you would be eligible for a tax credit based on your 2014 income. Please see our Federal Poverty Guideline page for more details.
2014 Federal Poverty Line (FPL) Guidelines
|Federal Poverty Guidelines 2014 – for Continental U.S.|
|Persons in Household||2014 Federal Poverty Level (100% FPL)||Medicaid Eligibility* (138% of FPL)||Premium subsidy threshold (400% of FPL)|
|*Medicaid eligibility is different in states that did not expand Medicaid. Federal Poverty Guidelines are different in Hawaii and Alaska.|
If you are eligible for a tax credit, an online calculator will help you estimate your actual tax credit. This estimate will give you an idea of how much health insurance will cost you and your family in 2015. Insurance rates for the next year may have not yet been finalized when you use a calculator outside of open enrollment so keep in mind that, once you are ready to purchase a health plan, the actual cost will likely change from any given estimate.
Calculating ObamaCare Tax Credits