Qualifying for the Credit

Take a look at the following chart. It shows the maximum income that households of various sizes can earn which is no more than four times the 2018 federal poverty level–the qualifying limit for the credit. If your household income falls within these levels, you’ll qualify for the credit.

For example, if you’re single and have no more than $48,560 in income in 2019, you’ll qualify for a health care credit. A family of four can earn as much as $100,400 and qualify.

Although they are called credits, the payments made under the ACA are really a government-funded subsidy. You don’t need to owe any income taxes to receive the credit. And, unless you direct otherwise, the credit is paid directly to your health insurance company, not to you when you enroll in your health insurance plan. This means that you do not need to wait until your taxes have been filed and processed to receive the credit; nor do you need to pay the full premium when you purchase health insurance and then wait to be reimbursed.

Determining the Amount of the Credit

How much is the credit? It depends on your household size, income, and the cost of health insurance where you live. The goal of the ACA subsidy program is to require you to pay no more than 9.86% of your income for health insurance each year. Those with the lowest incomes in the highest cost areas receive the largest tax credits.

You can get an idea of how big a credit you’ll qualify for by using the Kaiser Foundation Health Insurance Marketplace Calculator. If you plug in your income numbers, the calculator will give you an estimate of your subsidy. For example, a single person age 40 who earns $35,000 and lives in San Francisco would qualify for an annual credit of $3,329 ($269 per month). A family of four with parents both age 40 in the same area with $75,000 in annual income would get a $20,965 annual credit ($1,747 per month).

If you already have health coverage through an employer or your spouse’s employer, you won’t need or qualify for the health insurance credits, subject to two important exceptions:

• your employer’s health plan covers less than 60% of the cost of covered benefits, or

• your share of the employer’s premium that you must pay from your own pocket is over 9.86% of your income.

If either exception applies, you may enroll in a plan through your health insurance exchange and be eligible for premium and cost-sharing subsidies.

To obtain the health care credits, you must obtain your health insurance through your ACA health insurance exchange. The open enrollment period to obtain 2019 coverage through the exchanges lasted from November 1, 2018 through December 15, 2019, except in California, Colorado, Massachusetts, Minnesota, and Washington, which had longer periods. However, you can still obtain coverage after the open enrollment period if you have a life change—for example, you move to another state, lose your health insurance, get married or divorced, or have a baby. You can also get ACA coverage anytime if you qualify for Medicaid in your state.

A majority of states use the federal exchange, but several have their own state exchanges. You’ll be directed to the appropriate exchange website. You’ll have to complete an application that includes your estimate of what your 2019 income will be. The healthcare.gov website has detailed advice on how to do this accurately (see How to estimate your expected income). When your application is complete, the exchange will determine whether you qualify for the credits, and, if so, how much. You’ll need to verify your income when you file your taxes for the year; and, if you end up earning more than you estimated, you may have to pay back all or part of your tax credits. If your income changes unexpectedly during the year, you can let your exchange know and they will adjust your credit so you don’t get paid too much or too little.