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ACA – Health Care Premium Credit

Federal tax law always seems to contain a few cliffs—i.e., rules under which a $1 increase in taxable income, for example, can cost a taxpayer as much as thousands of times that $1. Beginning in 2014, there is a new cliff that will hit middle income individuals who are close to being able to qualify for the health reform law's premium assistance credit.

The new cliff—the health care premium credit.

The Affordable Care Act—provide the Code Sec. 36B credit that is designed to make health insurance affordable to individuals with modest incomes (i.e., between 100% and 400% of the federal poverty level, or FPL) who are not eligible for other qualifying coverage, such as Medicare, or "affordable" employer-sponsored health insurance plans that provide "minimum value." The credit applies for tax years that end after Dec. 31, 2013. For example, for persons whose income is between 300% and 400% of FPL, the credit is equal to the excess of the premium over 9.5% of household income. But, a taxpayer whose income is 401% of FPL, for example, gets no credit.

What should you do now about this cliff?

  1. Consider whether this cliff could conceivably affect you. Remember that it can only affect you if you buy your own health insurance on an exchange and are not eligible for other qualifying insurance.
  2. If you answered "yes" at Step (1) above, is it at least somewhat likely to be on the bad side of the cliff? Consider that 400% of FPL, for purposes of the 2014 credit, is $45,960 for one individual; $62,040 for a family of two, and $94,200 for a family of four.
  3. If you answered "yes" at Step (2), are you close enough to the edge of the cliff that you think you can take steps to get to the other side of the cliff for 2014?
  4. If you answered "yes" at Step (3), take steps to accelerate deductions into 2014 and/or defer income into 2015, until you are no longer on the bad side of the cliff. For many different methods of accomplishing these accelerations and deferrals.