Income-Based Sliding Scales & Tax Credits
The Affordable Care Act establishes new tax credits to help lower-income people afford health care. The new credits, which go into effect in 2014, give American taxpayers money back based on their income level and the amount they are paying for health insurance. The credits are financed by the U.S. Treasury. The lower a taxpayer's income level, the more of a credit he is likely to receive.
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Eligibility
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Americans who make between 200 and 400 percent of the federal poverty guidelines will be eligible for tax credits to offset their health care premiums starting in 2014. These tax credits use a sliding income scale. Thus, people with the lowest income level will get the highest tax credit. This enables them to better afford health insurance.
Advance Payments
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Under the Affordable Care Act, Medicaid patients may apply for advance premium credits. The U.S. government would pay these credits directly to the taxpayer's insurer, allowing patients to afford health insurance throughout the year. However, at the end of the year, the taxpayer must claim the credit on his taxes and compare it to the advance credits he has received. If a taxpayer receives more credit than he is entitled to, he must pay the difference back to the government.
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Consideration
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The government will use prior tax return information to determine whether a taxpayer is eligible for assistance using an income-based sliding scale. In the majority of cases, this assessment is accurate. However, some taxpayers will have income that is higher or lower during the current year, which can affect their eligibility for health care tax credits. This is why the government looks at the person's current income to determine eligibility for advance tax credits, rather than their prior year's income.
Two Programs
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Premium tax credits affect two programs. Some people will be eligible for Medicaid who were not eligible before due to the sliding scale tax credit and the availability of advance tax credits. Those people who are not eligible for Medicaid based on their income level may be eligible for the advance tax credit anyway. This will allow them to purchase health insurance throughout the year, regardless of whether they are currently insured or not. Eligibility is based on income level and immigrant status; illegal immigrants will not have access to these tax credits.
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