Healthcare Tax Credits: What is Considered Income?

Your premium tax credit eligibility depends in part on your income. So what exactly qualifies as income?“It starts with adjusted gross income, which is a line on the 1040 form,” says Lindsey Buchholz, Principal Tax Research Analyst at The Tax Institute at H&R Block. “And then you have to add back to that any tax-exempt Social Security you received, any tax-exempt interest you received, and then any income that was excluded under the foreign income and housing exclusion rules. That’s modified adjusted gross income for purposes of the credit.”

Individuals and families whose modified adjusted gross income is between 100 and 400 percent of the federal poverty level generally qualify for the premium tax credit. In addition to these income limits, all of the following eligibility requirements apply:

  • You must buy health insurance through a state exchange or the federal marketplace
  • You must be ineligible for health insurance coverage through an employer or government plan
  • You do not file a  a Married Filing Separately tax return (unless you meet the criteria in section 1.36B-2T(b)(2) of the Temporary Income Tax Regulations)
  • You can’t be claimed as a dependent

Premium tax credits credits may be received in advance to lower monthly health insurance premium payments throughout the year or claimed when you file your taxes. The best option for you depends on your personal circumstances and preferences. To hear what the experts say, read our recent post “Should You Take a Tax Credit Now or Later?”

Helpful subsidy reminders

Here are a few things should keep a few things in mind regarding the premium tax credit—at tax time, at shopping and enrollment time and, really, at any time:

Promptly report changes — If you take an advance premium tax credit, throughout the year you must report income and family size changes to your state exchange or the federal marketplace where you purchased health insurance. This ensures you receive the correct subsidy each month. Failure to report such changes can result in receiving too little or too much subsidy. If you receive more than you are eligible for, you may owe some or all of your premium tax credit back when you file taxes.

Not all coverage is eligible — Only health insurance plans purchased through state exchanges and the federal marketplace qualify for premium tax credits. Coverage you buy in the private marketplace or obtain through an employer is not eligible.

Fill out the right tax forms — If you bought health insurance through a state exchange or the federal marketplace, you will have to fill out Form 1095-A, Health Insurance Marketplace Statement. Additionally, you will fill out Form 8962, Premium Tax Credit, to determine your premium tax credit eligibility for the tax year and reconcile that amount with any advance premium tax credit you received.

If you aren’t quite ready to file your 2014 taxes but want an idea of what to expect when the time comes, check out H&R Block’s ACA tax calculator to get a customized impact analysis. The results will provide you with a general idea of how the Affordable Care Act will impact your 2014 taxes, including how receiving an advanced premium tax credit may impact your tax refund or amount owed when filing.

If you need assistance preparing your taxes or have tax-related questions, a tax professional or tax software can guide you through the filing process and help ensure you claim the deductions and credits for which you may be eligible. When working with a professional, be sure to find someone who has ACA training and is up to date on the law.

Still shopping for 2015 coverage?

Use the Obamacare subsidy calculator to estimate your advanced premium tax credit for 2015. If you qualify for this subsidy, be sure to purchase health insurance from your state exchange or the federal marketplace. If you don’t, shop for private marketplace options in your area.

Call 877-275-0485 to talk to a licensed health insurance agent from one of our trusted partners; these individuals can answer your questions and help you find the right coverage for you and your family.

About Jenifer Dorsey

Jenifer Dorsey is a regular contributor to She has covered health insurance and health and fitness for more than five years. In her free time she is a competitive track cyclist and loves to travel, especially to places with velodromes.