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Outside of open enrollment, a special enrollment period allows you to enroll in an ACA-compliant plan (on or off-exchange) if you experience a qualifying life event.

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I understand that subsidies come in the form of tax credits. But I’m unemployed and probably won’t owe any taxes. How would the subsidy help me?

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Q. I understand that health insurance subsidies come in the form of tax credits. But I’m unemployed and not sure when I’ll find a job, so I may not owe any taxes. How would the subsidy help me?

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A. The premium subsidy offered through the exchanges is a tax credit, but it differs from some other tax credits in two important ways.

First of all, the premium subsidy is a refundable tax credit, which means you can receive it even if you have no tax liability; the credit reduces the total amount of taxes you have to pay, and can even take your total tax liability below zero (ie, in the form of a refund). Even if you owe no income taxes at all, you’d still receive the premium tax credit if you qualified for it.

Second, the premium tax credit can be paid out in advance, directly to your health insurance carrier, throughout the year. Most tax credits have to be taken on your tax return, but Congress knew that it would be too much of a stretch to ask people of modest incomes to pay full price up front for their health insurance and then claim the tax credit the following year on their tax returns. You can still do it that way if you want to (as long as you buy your health plan in the exchange/marketplace), but you don’t have to. Instead, the ACA allows people to enroll in a plan through the exchange, and have their applicable tax credit paid directly to the health insurance carrier each month, to reduce the amount that the enrollee has to pay in monthly premiums.

Let’s say your pre-subsidy health insurance premium is $400/month, and you’re eligible for $250/month in premium subsidies. You can choose either to pay $400/month and get the full $3,000 tax credit ($250 times 12 months) when you file your tax return the following spring, OR you can choose to pay $150/month to your health insurance carrier, and have the government pay the $250/month tax credit straight to your health insurance carrier. The end result is the same, but the ability to take the premium subsidy throughout the year makes it easier for people to manage their monthly premiums on an ongoing basis.

Subsidy eligibility depends on income

But that said, we also have to consider the fact that premium subsidy eligibility is based on income. If you remain unemployed and have no income at all for the year, you wouldn’t qualify for a premium subsidy unless someone else in your household has enough income to make you eligible (an ACA-specific version of modified adjusted household income is used to determine subsidy eligibility; you can use this calculator to see whether you’re eligible for subsidies).

In 37 states and DC, Medicaid eligibility has been expanded under the ACA, so people with incomes up to 138% of the poverty level are eligible for Medicaid in those states (Missouri may join them in 2021, depending on the outcome of a court case). In 12 of the other 13 states, there’s a coverage gap: adults with income below the poverty level generally aren’t eligible for Medicaid, and they’re also ineligible for subsidies in the exchange (Wisconsin is the exception — the state has not expanded Medicaid, but covers people up to the poverty level with Medicaid, so there is no coverage gap).

If you have no income and you’re in a state that has expanded Medicaid (which is the majority of the U.S.), you should be eligible for Medicaid. If your income increases later in the year to above the Medicaid threshold, you’ll have an opportunity to switch to a subsidized plan in the exchange at that point, since you’ll lose access to Medicaid, and loss of coverage is a qualifying event that lets you enroll in a private plan (note that during the COVID public emergency period, states are not removing people from their Medicaid rolls, so your Medicaid coverage would not end until the end of the public health emergency period unless you request that it be terminated).

If you receive a subsidy throughout the year (paid directly to your health insurance company), you’ll have to reconcile it on your tax return the following year, using Form 8962. Ultimately, the amount of tax credit you get to offset your premiums depends on the actual amount of income you received throughout the year, although the subsidy that was paid in advance to your insurer was based on your projected income. It may have fluctuated from one month to the next, particularly if you had a stretch of unemployment during the year. But the total amount of annual income is what matters when you reconcile your subsidy on your tax return. If it turns out that your subsidy was overpaid, you may have to pay some—or all—of it back to the IRS. If it turns out that you didn’t get enough subsidy throughout the year, you’ll get the rest as a lump sum tax credit when you file your return.

Special rule for people receiving unemployment compensation in 2021

Although the above details remain true about ineligibility for premium subsidies if your income makes you eligible for Medicaid, the American Rescue Plan has boosted premium subsidies for people who are receiving unemployment compensation at any point in 2021. Here’s what you need to know about this:

  • If you’d be eligible for Medicaid based on your actual income for the year, nothing changes — you’re still eligible for Medicaid. Regular unemployment compensation is counted as income when determining Medicaid eligibility, but the additional pandemic-related federal unemployment compensation is not. The additional federal compensation is scheduled to continue until early September 2021, but half of the states are eliminating it before then.
  • If your income for the year, including all unemployment compensation, would be more than 133% of the poverty level, any amount above 133% of the poverty level will be disregarded in terms of determining your eligibility for premium subsidies and cost-sharing reductions in the exchange. This means you’ll qualify for full subsidies: You’ll be able to select either the lowest-cost or second-lowest-cost Silver plan without paying any premium at all (in some states, you may have to pay a dollar or two, due to additional state-mandated coverage benefits that aren’t covered by premium subsidies), and you’ll be eligible for full cost-sharing reductions that make your Silver plan better than a Platinum plan.
  • This benefit will last throughout 2021, unless you become eligible for an employer-sponsored plan or Medicare before the end of the year. If that happens, your subsidy would end at that point. But unlike other years when you’d have to repay it if your total annual income ended up above what you projected, you will not have to repay it for the months in 2021 when you didn’t have access to an employer’s plan or Medicare.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.


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