Health Insurance Tax Credit

The Treasury Department proposed regulations August 12th for a Premium Tax Credit for buying health insurance. This tax credit would give millions of middle-class Americans tax benefits intended to assist them with the acquisition of health insurance as part of the Affordable Insurance Exchanges that states will set up around the country. According to the Congressional Budget Office, when the Affordable Care Act is fully phased in, individuals receiving Premium Tax Credits would get an average subsidy of more than $5,000 a year.

The tax credit would be generally available to families with incomes between 100 percent and 400 percent of the federal poverty level. That would be between $22,350 and $89,400 for a family of four in 2011. Older Americans who face higher premiums from health insurers would be able to receive larger tax credits. Under the proposed regulations, covered individuals must be legally present in the United States and not incarcerated. They also must not be eligible for other qualifying coverage, such as Medicare, Medicaid, or affordable employer-sponsored coverage. Also, the premium tax credit is refundable so taxpayers who have little or no income tax liability can still benefit. The credit also can be paid in advance to a taxpayer’s insurance company to help cover the cost of premiums.

Tax credits are available to qualified individuals offered, but not enrolled in, employer-sponsored insurance if (a) it is “unaffordable” (meaning that the self-only premium exceeds 9.5 percent of household income); or (b) it does not provide a minimum value (meaning it fails to cover 60 percent of total allowed costs). The Treasury Department anticipates that future regulations will define minimum value in a way that preserves the existing system of employer-sponsored coverage, but that does not permit employers to avoid the statutory responsibility standards.