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2016 Obamacare Premium Tax Credit Calculator

Note: I’ve updated this calculator so that it runs directly on your browser (instead of on an embedded spreadsheet). To use this new and improved version, click here.

In 2016 the federal government will once again offer a Premium Tax Credit (PTC) to qualifying taxpayers who buy their own health insurance from an approved health insurance exchange.

To receive a PTC you must split the uprights between making too little and too much income. If you make too little, you drop out of Obamacare and into Medicaid. This precludes any PTC and subjects you to coverage that many believe is inferior to private health insurance. The PTC also disappears if you make too much. This happens when your household income exceeds 400% of the applicable poverty line (as discussed below, the government draws this line based upon your state of residence and household size).

To assist your Obamacare planning for 2016, I’ve updated this site’s popular PTC Calculator (for last year’s version, click here). The calculator shows how much of your monthly premium will be reimbursed by the government and how much, if any, you’ll have pay yourself. To see your bottom line, you only have to enter four numbers:

Line 1: Your Monthly Premium. Plug in your projected monthly cost of health insurance for 2016. This is the premium you’ll contract to pay during the open enrollment period that began November 1, 2015 and ends on January 31, 2016. If you haven’t picked a plan yet, you can use the calculator to size up various policies.

Line 2: The Monthly Premium of the Second Cheapest Silver Plan You’re Offered. Known as the Applicable Benchmark Plan (ABP), see Internal Revenue Code § 36B(b)(2), this amount can be obtained by ranking from cheapest to most expensive all the Silver plans that were offered to you by your health insurance exchange during the open enrollment period. The ABP is the second cheapest silver plan you were offered. You can also obtain the ABP by calling the marketplace from which you purchased your insurance. Your ABP can vary widely from year to year. For 2014, our household’s ABP was $730.73, for 2015 it was $637.80, and for 2016 it will be $886.85.

Line 3: Your Household’s Poverty Line. For tax year 2016, use the 2015 Poverty Guidelines for the size of your household as published in one of the three tables below. Use Table 1 if you live anywhere other than Alaska or Hawaii. Use Table 2 if you live in Alaska. Use Table 3 if you live in Hawaii.

TABLE 1
2015 POVERTY GUIDELINES FOR THE 48 CONTIGUOUS STATES
AND THE DISTRICT OF COLUMBIA
Persons in family/household Poverty guideline
For families/households with more than 8 persons, add $4,160 for each additional person.
1 $11,770
2 15,930
3 20,090
4 24,250
5 28,410
6 32,570
7 36,730
8 40,890

TABLE 2
2015 POVERTY GUIDELINES FOR ALASKA
Persons in family/household Poverty guideline
For families/households with more than 8 persons, add $5,200 for each additional person.
1 $14,720
2 19,920
3 25,120
4 30,320
5 35,520
6 40,720
7 45,920
8 51,120

TABLE 3
2015 POVERTY GUIDELINES FOR HAWAII
Persons in family/household Poverty guideline
For families/households with more than 8 persons, add $4,780 for each additional person.
1 $13,550
2 18,330
3 23,110
4 27,890
5 32,670
6 37,450
7 42,230
8 47,010

Line 4: Your Projected 2016 Modified Adjusted Gross Income (MAGI). For most taxpayers, there exists no difference between their Adjusted Gross Income (AGI) and MAGI, because most households don’t experience any of the three narrow circumstances that trigger MAGI calculations: non-taxable social security benefits (see Form 1040, lines 20(a)-20(b)), tax-exempt interest (see Form 1040, line 8b), and excluded foreign earned income and housing expenses for those who live abroad (see Form 2555, lines 45 and 50). If your income stays level year-to-year, you can enter the AGI as reported on your most recent federal tax return (Form 1040, line 37). If your income doesn’t stay level, plug in your low and high estimates for 2016 to see how they affect your results.

Here’s the calculator. If its last line reports a negative value, this means that your PTC will exceed your monthly premium and your health insurance costs will be fully subsidized—a very good result indeed.

Note: the Applicable Percentage figure as reported on line 7 is based upon the 2016 version of the Form 8962 Instructions, which the IRS published in the fall of 2016.

Using the PTC Calculator in Your 2016 Tax Planning

Defer or Accelerate Income. If your income for 2016 is malleable—that is if you can exercise some control over its size—the calculator can tell you how much your PTC might change if you accelerate extra income into 2016 or, alternatively, deferred receiving it until 2017. For example, if accumulated gains on stocks you now hold would push you over 400% of the Poverty Line, it might make sense to delay selling them until after January 1, 2017 (but of course this strategy exposes you to the risk of any intervening market downturns).

Defer or Accelerate Adjustments to Income. The PTC Calculator might also show that you could benefit by making adjustments to income in 2016, or, alternatively, by deferring them into 2017. Possible adjustments include paying student loan installments early, funding Health Savings Accounts, accelerating 2017 tuition payments into 2016, and more. For a full list of the possibilities, review lines 23 – 35 of Form 1040.

Avoid Medicaid. You can also use the PTC Calculator to avoid Medicaid coverage (if indeed this is something you wish to avoid). All Medicaid eligibility is based upon your family’s Federal Poverty Line Percentage (FPLP) (see line 5 of the PTC Calculator). Whether you’re subject to Medicaid is a complex question because states apply differing FPLPs based upon existing pregnancies or the number of children in the household. A fast starting point for analysis is the Medicaid eligibility chart published by the Center for Medicaid and CHIP services, which you can access by clicking here. Several cautions apply to using this chart. First, it was published in late 2014. Rules change frequently so check for any updates at your home state’s Medicaid website. Second, Medicaid eligibility can vary based upon citizenship, residency, or immigration status. If any of your household members have issues in these areas, consult an expert. Third, all states disregard 5% of FPLP when calculating eligibility. So, for example, if the eligibility chart reports your household’s FPLP threshold as 133% for Medicaid, to be on the safe side increase your MAGI until you reach an FPLP of at least 138% (as reported on line 5 of the calculator).

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As always, consult your tax advisor to find out which health insurance strategies work best for you. The tax code is a dense labyrinth filled with breathtaking complexity and many traps for the unwary. Hopefully, the PTC Calculator will ease your journey, but you can achieve even greater confidence about your chosen path if you hire an experienced guide.

If you’d like to explore my prior articles about Obamacare, click the following:

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2 Responses to 2016 Obamacare Premium Tax Credit Calculator

  1. Laurie February 11, 2016 at 8:51 AM #

    This is definitely something for people to consider very closely. Very informative article, thank you for sharing!

    • A Noonan Moose February 11, 2016 at 8:55 AM #

      Thanks very much for the kind words Laurie!

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