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Covered California and Obamacare related questions from consumers, employers and agents are answered by Phil Daigle with the best information available at the time. Archived entries may no longer be accurate as the Covered California and Obamacare knowledge-base is evolving quickly. TO REQUEST A PERSONAL RESPONSE INCLUDE EMAIL ADDRESS.

How the Advanced Tax Credit Works

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Question: My gross income for myself and my daughter falls in the range of 200-250% of the FPL. AFter exemptions and deductions I pay no Federal Income Tax. Therefore, a tax credit will not help me. Can I get another type of subsidy?

Answer: While the premium subsidy is called an “advanced tax credit”, it works differently than you are assuming. For example, if your family’s insurance premium before the subsidy is $1000 and you qualify for a subsidy or “advanced tax credit” of $700. The federal government sends that tax credit directly to your insurance company and you pay only the balance of $300 each month. It’s called an “advance” because if the government overpays for some reason, for example your income goes up during the year, you will pay back some of that advanced tax credit when you file your taxes for that year.


Correct me if I am wrong, from what I seen to understand from the questions and comment above. The AdvancePremium Tax Credit is the amount that the Federal government pays towards the monthly premium. When taxes are filed and you owe money, the Federal government will then reimburse itself by taking the total amount that they paid out of the money that is owed on the Federal taxes? Is this correct?

If so, what happens if you can not pay the taxes owed?

If I don’t owe any taxes at the end of the year and I didn’t qualify for the amount of tax credits awarded in advance (based upon my estimates) that were paid to the insurance company, how would the IRS collect the overpayment of credits? I understand that any penalties owed for not having coverage would not be collected if you don’t owe taxes. Would this be the same concept of no collection for overpaid credits if you don’t owe taxes at the end of the year?

You would get additional credits equal to what you were underpaid in 2014 to be used against your 2015 health insurance premium.

I understand that if your income is higher in 2014 than projected you will owe more for your insurance. What if you earn less will you get a refund of what you’ve already paid.

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