When you apply for health coverage, you will be asked to estimate your income for the upcoming year. If you earn less than 400% of the Federal Poverty Level (or $97,200 for a family of four in 2016, $95,400 in 2015), you may qualify for financial help to reduce the cost of your monthly health insurance premium. You will have the option of taking these premium tax credits either:
A) in advance, to reduce what you pay each month;
B) at the end of the year when you file your taxes; or
C) as a combination of A and B – a smaller monthly payment than you qualify for, in addition to an expected refund when you file your taxes.
Keep in mind that if your income turns out to be different than your estimate, and you end up getting more help in advance than you are eligible for, you may have to pay back some or all of the premium tax credit you received. This repayment would occur when you file your income taxes the following year. Depending on your household income, there might be a limit to the amount you could have to repay (see chart below).
On the other hand, if you over-estimate your income and claim less help than you end up being entitled to, the difference will be refunded to you when you file your taxes.
To ensure the most accurate premium tax credit amount, you should report income changes to Vermont Health Connect during the year, when they happen. Otherwise, if you claim a premium tax credit during the year and your actual income exceeds 400% FPL (see FPL chart), you will need to pay back the full credit amount.
If you estimate that your household income will be close to 400% FPL, you could also consider waiting until you file your taxes to take all or a portion of the premium tax credit on your tax return instead of receiving advance payments.
Please note: Income on the chart is Modified Gross Adjusted Income, or MAGI. This includes the income reported on your tax return plus any tax-exempt Social Security, interest, or foreign income. More information is in the instructions for IRS Form 8962, Premium Tax Credit.