The Affordable Care Act provides tax credits for people who are not provided with health insurance through their employers and cannot afford to buy it themselves. Sounds pretty simple, but, as usual with government regulations, there is more to it than that.
The ACA is intended to make health insurance coverage prevalent in the United States. It imposes mandates on employers and individuals to do certain things and imposes penalties if those things are not done. It also provides assistance to help individuals meet their obligations.
The ACA requires employers of 100 employees or more to offer health insurance to their employees. Further, the insurance must meet certain standards of minimum coverage. At the same time, it helps to facilitate the purchase of private policies for those who do not have insurance through an employer. The Act provides for the establishment of a state Health Insurance Marketplace, also known as a Health Insurance Exchange, in each state through which individuals can purchase insurance. If states do not establish exchanges, the federal government offers one that may be accessed by residents of those states. The Marketplaces have a specific enrollment period, typically in the first few months of each new year.
If individuals do not obtain insurance through an employer or do not purchase health insurance, a tax penalty is imposed by the Internal Revenue Service. The only people relieved of this penalty are those for whom the cost of coverage would exceed eight percent of their annual income. Tax credits, however, are provided for some people who might not otherwise be able to afford insurance.
The tax credits are available to persons who meet the following criteria:
- Purchased insurance through a Marketplace;
- Are not eligible for insurance through an employer or a government program;
- Have a household income level 100 to 400 percent of the federal poverty level;
- Do not file a married but filing separately tax return; and
- Cannot be claimed on another person’s tax return.
The credit can even be sent directly to the insurance carrier to help pay premiums. At the time of purchasing insurance through a Marketplace, the purchaser can apply for the tax credit and have the estimated amount sent to the carrier. As an alternative, the purchaser can elect to have the credit applied at the time he files his income tax return with the IRS.
A recent United States Supreme Court case, King v. Burwell, assured continuation of the tax credits for people throughout the country. Several individuals in Virginia filed suit alleging that the ACA only allowed credits for those buying insurance through a state exchange. If this was the case, only residents of those states with exchanges ─ California and 15 others, plus the District of Columbia ─ would be eligible for credits. The Court, however, ruled that the credits also apply to those who purchased through the federal exchange.
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