Learn how to take advantage of financial help and avoid tax penalties when enrolling for health insurance. You may be leaving money on the table!
When the government wants to encourage you to do something, they often offer you a tax credit. Examples include everything from buying energy-efficient appliances to purchasing health insurance. The bonus is that tax credits actually lower how much you owe and, even better, health insurance tax credits are actually refundable. Consider this, if you owe $2,000 in taxes and have an unused tax credit of $2,500, you’ll get a check for $500.
Financial Help, Health Insurance & Your Taxes
Health insurance tax credits are financial help from the federal government that lower your monthly premium. That’s why they are referred to as premium tax credits. And Covered California has helped millions of residents receive these subsidies.
You can get this financial help as a reduction to your monthly premium. Or you can choose to receive it as one lump sum come tax time. The amount is based on your household income. So if you make more or less money than when you applied, your financial help could also change. To avoid any surprises come tax season, report these changes to Covered California.
Applying for Financial Help
Whether or not you get financial help — and the amount — depends on your estimated income for that year, how many people are in your tax household, your age, and your ZIP code.
Check out our interactive calculator to see just how affordable brand name, quality health insurance can be. You can also explore what plans are in your area by using our Shop and Compare tool. Nine out of 10 enrollees receive financial help and many pay $10 (or less) per month for coverage.
Self-Employed and Small Business Owner Tax Deductions
For self-employed workers, there is a unique self-employment tax deduction allowing independent contractors to deduct 100 percent of their health insurance premiums up to their income level for themselves, their spouse and any dependent children. Contractors should take this into account not only at the end of the year, but when calculating quarterly tax payments as well.
Small business owners can deduct most of their health insurance expenses from their federal business taxes, while still qualifying for tax credits to help offset the cost of insuring their employees. The amount of the credit depends on the number of employees the company has and how much the owner is pitching in for their health insurance. Use the Small Business Tax Credit Calculator to estimate if your business is eligible. Currently, only small businesses that buy health insurance through Covered California are able to receive this federal tax credit.
Avoid Tax Penalties
If you don’t have health insurance, you may face a penalty come tax time. For tax year 2023 this penalty could cost at least $900 for every adult in your household plus $450 for each dependent child. A family of four could owe a minimum of $2,700, for example. Find out what potential tax penalties you may face without coverage and keep in mind, these penalties may vary from year to year.
However, there are many exemptions to this penalty, and most must be claimed at tax time except for the three granted through Covered California. Learn more about these exemptions, and how to avoid a penalty, by clicking here.
At the end of the day — and the end of the year — it is in your best financial interest to sign up for health insurance. Learn more or apply now through Covered California.
