How Does an Obamacare Subsidy Work?

Category: Obamacare (Affordable Care Act) Originally Posted: April 17, 2015 by Colleen McGuire Last modified: May 29, 2015

Subsidy [suhb-si-dee]
1. a grant or contribution of money.

If you purchase your healthcare insurance through a state based exchange or the federal health insurance marketplace, you may receive a subsidy, which is a contribution of money from the federal government, to help pay for the overall cost of your Obamacare health insurance plan. This subsidy is also known as a tax subsidy or a premium tax credit.

Individuals who may be eligible for an Obamacare subsidy to help lower the cost of their health insurance and get affordable health care must meet all of the following requirements:

  1. You must buy your health insurance plan through a state based exchange or the federal insurance marketplace;
  2. You do not have access to health insurance through an employer or a government plan;
  3. You are within certain income limits, typically 100 to 400 percent of the federal poverty level (this varies by state);
  4. You file a Married, Joint tax return (unless you meet criteria which allows victims of domestic abuse and spousal abandonment to claim the premium tax credit using the Married Filing Separately filing status); and
  5. You are not claimed as a dependent by another person.

How an Obamacare Subsidy Works

Joe and Stella are both 50 years old, living in Collin County, Texas. They have two children under the age of 26 who they claim as dependents. Joe and Stella reported $75,000 in gross income to the Internal Revenue Service last year. Using an Obamacare tax subsidy calculator, they determine that they are eligible for $185.92 in subsidies each month to help make their health insurance plan more affordable. Joe and Stella can buy a Silver plan with a $4,000 deductible and $25 doctor copay for $876.04 a month, which covers them and their two children. This Obamacare subsidy is saving them $2,231.04 over the course of 12 months.

Subsidy and Taxes

The Obamacare health insurance subsidy is not a loan you have to pay back, unless you miscalculate how much funding you should receive. If you receive a subsidy on your healthcare plan, you will need to complete several forms to prove your income and confirm the subsidy amount received over the year was accurate.

The first form you will need to complete on your taxes is Form 1095-A, which is an itemized health insurance statement that will help you finalize your second form, Form 8962. Form 8962 is the official form to claim your tax credit and reconcile the amount of subsidy you received with the amount you were eligible for. If the total amount of subsidy you received was less than what you were owed, you will receive a refund

Example: You could get a refund on your taxes if you reported that you would have an income of $28,000 in a year and only made $25,000. Your lower income would have made you eligible for more subsidy dollars, and thus, the government will give you back the difference in a tax refund.

If your income wound up being higher than originally estimated, you will need to pay the difference for the subsidy dollars spent with your tax return.

Example: You might have to pay subsidy dollars back if you said you would only make $28,000 during the year, but because of a windfall of unexpected income, you actually made $32,000. If this happens, you have to pay the subsidy dollars you received to lower the cost of your health insurance back to Uncle Sam.< The Obamacare tax subsidy credit is a tremendous way to make health insurance more affordable, however, for individuals who have fluctuating income, the risk of having to pay back the government can outweigh the need for the subsidy. If you are on the borderline, you can purchase health insurance without a subsidy, and at the end of the year, determine if you would have qualified for a health insurance subsidy based on your income. If you would have qualified, the government will refund the difference to you. If you have a subsidy on your health insurance plan, and your income changes during the course of the year, you can also contact your state exchange or the federal marketplace and report your new income estimate, and have your subsidy adjusted to avoid the risk of being hit with higher taxes come April 15.

Don’t Qualify for an Obamacare Subsidy?

If your annual income is above the 400% federal poverty level, you most likely won’t qualify for an Obamacare tax subsidy to purchase health insurance. However, you have an additional option because of your income status.

The private marketplace is an alternative for individuals who do not qualify for a tax subsidy. Be aware, the state and federal marketplace exchanges have limited choices. Not all health companies filed to participate in the exchanges. Of the insurance companies that do participate on the exchanges, most of the companies do not sell every healthcare plan they actually offer. To get access to more health insurance company options and more health plans, visit the private marketplace. If you don’t qualify for a subsidy, there is no reason to stay on the exchange where your choices are more limited.

To review all of your health insurance plan options on the state exchange, federal and private marketplaces, visit