A big piece of the Patient Protection and Affordable Care Act (PPACA) was the availability of a marketplace tax subsidy to help offset the cost of health insurance when a plan is purchased on the health insurance marketplace, or exchange. The system was designed to help those with lower income levels afford quality coverage. The question that we get all the time is, “what are those levels?” Here is a chart showing the income levels required to receive a marketplace tax subsidy.
Income levels required to receive tax subsidies on health insurance plans purchased on the marketplace.
|Number of People in Household|
|Lower Premiums if income is between:||$11,670 – $46,680||$15,730 – $62,920||$19,790 – $79,160||$23,850 – $95,400||$27,910 – $111,640||$31,970 – $127,880|
|Lower Premiums AND Lower Out-of-Pocket Costs if income is between:||$11,670 – $29,175||$15,730 – $39,325||$19,790 – $49,475||$23,850 – $59,625||$27,910 – $69,775||$31,970 – $79,925|
|If your state is expanding Medicaid, you may qualify for Medicaid if income is below:||$16,243||$21,983||$27,724||$33,465||$39,206||$44,497|
Note: Hawaii and Alaska have different income ranges.
What is the Definition of Yearly Income for Health Insurance Marketplace Tax Subsidy Purposes?
The yearly income that is used to determine eligibility for tax subsidies is, for most people, the adjusted gross income. The term that is used on the marketplace application is modified adjusted gross income. This figure takes into account income such as tax-exempt Social Security payments, interest, and foreign income.
The yearly income that is used to determine eligibility for tax subsidies is, for most people, the adjusted gross income.
The modified adjusted gross income also takes into account deductions that you may claim on your tax return. These deductions should be entered during the marketplace application process:
- Student loan interest
- Educator expenses
- Job-related moving expenses
- Alimony payments
- Individual retirement account contributions if you do not have a retirement account through work
- Tuition costs if you pay them out of pocket and claim them on your taxes
Do not enter items such as mortgage interest and charitable contributions. These are taken into account elsewhere.
What if My Income Changes During the Year?
One of the biggest challenges to determining eligibility for a marketplace tax subsidy is estimating your future earnings. When you are filling out the health insurance application online, you are guessing what your income is in the next year. For some people that can be a difficult task. If your income changes during the year, you must report that to the marketplace as soon as possible.
Who to Include as a Member of Your Household?
As you can see, your chances of eligibility for a marketplace tax subsidy increases if you have more people in your household. So the question is, who all should be included as a member of your household? Short answer:
- Everyone you will claim as a dependent on your tax return
- Children that are living with you
- Spouse (you must file jointly to receive a higher marketplace tax subsidy)
The long answer to who counts as a member of your household can be found here.
Make sure to include everyone in the household, even those not needing health insurance through the exchange. Much like reporting income changes, if your living arrangements at home change, you need to report that as soon as possible.
Exception to Claiming a Spouse
There is an exception to the rule that married couples must file jointly to receive a marketplace tax subsidy. If you are living separately from your spouse and are a victim of domestic abuse/violence or spousal abandonment, you may claim “unmarried” on the marketplace application without penalty.
Receiving Lower Out-of-Pocket Costs Through the Health Insurance Marketplace
As you can see from the table above, there is also a chance that you could receive lower out-of-pocket costs through the health insurance marketplace in addition to a tax subsidy. If your yearly income falls in the range shown above, you are eligible. The only catch is that you MUST enroll in a silver plan. Make sure you take a look at all the plans available to see if this benefit is the right one for you.
What if I am a Dependent on Someone Else’s Tax Return? Can I Get a Marketplace Tax Subsidy?
If you claimed as a dependent on someone else’s tax return you are not eligible to receive a subsidy through the health insurance exchange. You are still able to purchase a health insurance plan, but you will pay the full price for the plan. There are other options available as well.
Are all Marketplace Tax Subsidies the Same?
No, subsidies are given on a sliding scale. If you are at the higher end of the ranges shown above, you will not receive as much financial assistance when buying a health insurance plan on the exchange as someone at the lower end of the range.
Take Advantage of Subsidies
One goal of the Affordable Care Act was to provide health insurance at more affordable rates. Politics aside, the marketplace tax subsidy that is available to many people helps them purchase quality medical insurance at a low rate. It may not always be as low as what an employer could offer, but in many cases it is. When you fill out your application at the next Open Enrollment, make sure you take full advantage of a subsidy that is available to you.