How the Tax Subsidies Work

With the Affordable Care Act, how much of the premium is offset by tax subsidy? How do taxpayers know?

Starting in 2014, close to half of Americans buying health care on the exchanges will be eligible for tax credits to help offset the cost. The Kaiser Family Foundation estimates the average subsidy will come to roughly $5,500 or about two-thirds the cost of the premium.

Your personal subsidy will depend on your family’s income and the cost of insurance available to you on the exchange, What makes this so hard to quantify is due in large part to the varying cost of health insurance in each state.

The subsidy will equal the difference between the premium for the second-lowest-priced silver plan (also known as the benchmark plan) and a specified percentage of income. In 2014 the percentage will range from 2% for those with incomes below 133% of the federal poverty level and goes up to 9.5% for individuals and households with incomes up to 400% of the poverty level (which is about $24,000 to $94,000 a year for a family of four in 2014).

You check out this subsidy calculator at iHealthCareUpdates.com to help figure out your individual credit. For example, a non-smoking, single 25-year-old earning $28,000 a year would, according to the calculator, receive a tax credit of up to $835 or 27.5% of the overall premium.

For more individualized help, please contact us.