Health care costs continue to increase here in North Carolina and across the country. Health insurance is necessary if most individuals want to receive medical care. However, the price associated with securing health insurance, if you don’t receive such benefits through an employer, Medicare, or Medicaid, can be cost-prohibitive for most. This assessment even applies to coverage available through the healthcare marketplace established after President Obama signed the Affordable Care Act (ACA) into law.
Fortunately, there are health insurance subsidies that you may qualify for to make securing coverage a feasible option for you. Continue reading to learn more about the tax credit qualifications in North Carolina and how significantly securing a health insurance subsidy like this might defer much of your health insurance costs.
What Are Health Insurance Subsidies?
The federal government devised a system whereby low to middle-income citizens who didn’t qualify for health insurance coverage through any other means could request assistance to do so. The federal government devised a sliding scale subsidy program that would reduce monthly premiums prospective insureds would have to pay when purchasing coverage through the marketplace and allow these same prospects to have a lower out-of-pocket (OOP) threshold.
Two types of health insurance subsidies exist. One is a financial assistance program based on a cost-sharing model that minimizes OOP costs, as discussed above. The other type is the premium tax credit, which specifically aims to reduce an enrollee’s monthly insurance coverage payment.
How the Health Insurance Premium Tax Credit Subsidy Works
One of the first tax credit qualifications is to purchase insurance coverage via the healthcare marketplace. The available plans are listed by tiers: bronze, silver, gold, and platinum. A bronze tier policy has a high deductible (the highest OOP costs) but the lowest monthly premiums. In contrast, a platinum tier policy allows insureds to pay very little for out-of-pocket medical care; however, those covered by such a plan have significantly higher monthly premiums. Subsidy applicants can purchase any tier policy and apply it to their premium.
What Are the Health Insurance Subsidy Tax Credit Qualifications?
Any North Carolina resident who wants to qualify for the premium tax credit must:
- Be a U.S. citizen or a legal resident of the U.S.
- Not be eligible for health insurance coverage through either an employer, oneself (or as a dependent of someone in their household) or government health insurance programs such as Children’s Health Insurance Program (CHIP), Medicare, or Medicaid.
- File taxes jointly with their spouse if they’re a married applicant
- Show that their annual household income is at or below the Federal Poverty Level (FPL) during the year prior to their request for the subsidy. In other words, an applicant applying for benefits in 2022 would have their 2021 household income compared to the FPL to determine their eligibility for the subsidy in 2022.
- Immigrants lawfully present in the U.S. may also be eligible for the tax credit if they can prove that their income falls below 100% FPL.
Comparing Your Income to the Federal Poverty Level
As mentioned above, how your household income, referred to as Modified Adjusted Gross Income (MAGI), compares to the federal poverty level determines whether you qualify for a health insurance subsidy. Your MAGI accounts for not only the salaries, income, or wages of the working members of your household but also any Social Security benefits, dividends, and interest. The FPL thresholds apply to all 48 contiguous states; however, the MAGI calculation increases as a household gets bigger.
Members of a North Carolina household earning 100% FPL would generally qualify for a subsidy that provides cost-sharing financial assistance to reduce an insured’s out-of-pocket medical costs but wouldn’t be eligible for a premium-lowering tax credit. There’s one exception to this rule. Federal law allows lawful immigrants to receive the tax credit in this instance.
How Much of a Premium Tax Credit You May Be Eligible For
The FPL table updates annually. According to the Internal Revenue Service (IRS), individuals wishing to receive the health insurance tax credit subsidy in 2022, for example, could expect to contribute the following percentage of their household income, depending on where within the range it fell, to their coverage premium costs:
- Up to 199% of FPL: 0%-2%
- From 200%-249% of FPL: 2%-4%
- From 250%-299% of FPL: 4%-6%
- From 300%-399% of FPL: 6%-8.5%
- 400% or more of the FPL: 8.5%
So, to clarify, if you purchased a plan that totaled $4,000 annually and your household income was 150% FPL, your expectation is that your monthly premium amount would be zero. If that same individual selecting the same insurance coverage had an annual household income that was 300% of FPL, they would expect to pay 6% of the annual health insurance premium for the year, or $700. They would receive a tax credit subsidy for the remaining $4,300.
How You Receive the Health Insurance Tax Credit
As you’ve read about health insurance coverage subsidies and the tax credit qualifications, you might be wondering whether you would have some upfront costs that you would initially have to cover and wait for reimbursement at some other point. After all, this is what typically happens with other tax credits, right? While our Raleigh-based Carolina Insurance Professionals agents would be happy to into greater detail about your specific situation if you contact us, we’ll try to give you a general overview of what to expect below.
Subsidy applicants in North Carolina can generally request an advance on the payment (pre-payment) of the tax credit and then later claim it when filing their annual income taxes with the IRS. Individuals who do this would pay their insurance premiums monthly and then request the tax credit when filing their tax return with the federal government at the end of the year.
There is alternatively the advanced premium tax credit (APTC). It allows insureds who qualify for the subsidy can request that the federal government pay one-twelfth of their monthly insurance premium to their marketplace insurer based on their estimated income for the current year.
In this case, consumers who overestimated their annual income would be eligible for a refund of any tax credit amount. Anyone who underestimated their income would be responsible for repaying any tax credit overpayment.
According to the IRS, health insurance tax credit applicants for the year 2022 could expect repayment limits for the APTC to have the following maximum caps, depending on whether they’re a single or some other type of filer:
- 199% of FPL or under: $325 (single) or $650 (other)
- 200%-299% of FPL: $800 (single) or $1,600 (other)
- 300%-399% of FPL: $1,350 (single) or $2,700 (other)
- 400% or more of FPL: The full amount of excess tax credits would need to be repaid
Where To Turn With Health Insurance Tax Credit Qualifications
The good news is that in August 2022, U.S. Congress expressed their interest in continuing to allow for health insurance subsidies through at least 2025. So, while qualifying for a subsidy once won’t ensure you receive it for the next few years, you can at the very least rest assured knowing that, should you continue to meet the tax credit qualifications, it will be an option available for those who need it.
Calculating your household’s MAGI so you can determine where your income falls on the federal poverty level table can be challenging. Even if you successfully calculate this amount, determining whether you meet the tax credit qualifications to make your monthly premium for health insurance more affordable isn’t easy. Our Carolina Insurance Professionals team, based out of Raleigh, NC, can help clarify things for you!
Our North Carolina insurance brokerage prides itself on helping our state’s residents secure auto, health, Medicare, and homeowners’ insurance. We focus on finding affordable plans that fit your budget while providing the coverage you need to protect yourself and your assets.
We understand that while it may be your goal to purchase the right insurance coverage, you may not be able to accommodate adding any additional expenses to your household budget. This understandable detail motivates our Carolina Insurance Professionals team to identify and notify NC residents about tax breaks they may qualify for to help reduce their expenditures.
Our insurance agents at Carolina Insurance Professionals would be more than happy to delve a bit deeper into explaining the health insurance subsidies and tax credit qualifications. Give us a call or email with any questions you have. We’re waiting to hear from you so we can help!