Getting the Right Tax Credit
Tax credits are available to help lower the cost of health care for individuals and families who enroll in a Covered California health plan and meet certain income requirements. Individuals must also not have an offer of affordable health insurance from an employer or from the government.
- Premium assistanceis a federal tax credit you can receive in advance or at tax time that helps make the amount you pay for your insurance each month lower. How much advance premium tax credits you receive is based on how much money you make, your tax household size and where you live.
- You may also be receiving cost-sharing reductions. This type of financial help lowers the part you pay when you visit a doctor or hospital or fill your prescriptions.
You cannot apply premium assistance or cost-sharing subsidies to a minimum coverage plan (also known as a catastrophic plan).
Why is it important to accurately report my income and household size?
If you receive help making your insurance more affordable, you need to file taxes. When you file, the Internal Revenue Service (IRS) will check to see if the amount of income you reported to Covered California is the same as the amount of income you actually made. The IRS will also check to see if your family size is the same as when you applied. The IRS will then compare the advance premium tax credits you received during the taxable year with the premium assistance that you qualify for based on the actual household income and family size you reported on your tax return. This is known as reconciliation.
It is possible that you will qualify for more premium assistance than you received because at the end of the year your income was lower or your tax household size was larger than what you reported to Covered California. If this happens, you may get money back when you file your taxes.
It is also possible that you qualify for less premium assistance than you received because at the end of the year your income was higher or your tax household size was smaller than what you reported to Covered California. If this happens, when you file taxes you will have to repay the extra amount you received.
Every year, Covered California will send enrollees a tax form called a Form 1095-A, which you will need when filing your taxes. This form helps to determine whether you received too much or too little financial assistance in paying for your insurance premium. Your 1095-A shows what Covered California paid to your insurance company in 2014 to help you with the cost of your health coverage. The amount paid was based on the income information and household size you provided. If your income changed, you may have paid too much or too little for your health coverage.
What can I do to avoid owing money when I file my taxes?
- If you have a change in your application information, you must report the change to Covered California within 30 days. Also, if Covered California asks you to provide documents that verify your income, you must do so by the dated listed on your notice.
- If you are worried about owing money at tax time, you can choose to take less of the advance premium tax credit each month. Your monthly premiums will still be lower, but not as much. By taking less credit during the year, there is less chance you will owe back money at tax time.
- You can also choose to pay the full premium amount each month. If you choose this option, when you file your taxes you would subtract your tax credit from the tax you owe — or get a bigger refund if you didn’t owe anything.