In 2018, the federal government will once again offer a Premium Tax Credit (PTC) to qualifying taxpayers who buy health coverage 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, prevents you from contributing to a Health Savings Account (HSA), and places you in 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 (the government draws this line based upon your state of residence and household size).
Note: as with all other calculators on this website, none of the entries you make will be collected or stored.
To work the calculator, enter your state of residence, the number of people in your household, and these three numbers:
Line 3: Your Monthly Premium. Plug in your anticipated monthly cost of health insurance for 2018 as reported by your health insurance exchange’s website.
Line 4: 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 the health insurance exchange offered to you 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 example, for 2014, our household’s ABP was $730.73, for 2015 it was $637.80, for 2016 it was $886.85, for 2017 it was $1,043.39, and for 2018 it will be a whopping $1,445.07.
Line 5: Your Projected 2018 Modified Adjusted Gross Income (MAGI). For most taxpayers, there exists no difference between Adjusted Gross Income (AGI) and MAGI, because most households don’t experience any of the three narrow circumstances that trigger MAGI calculations: (1) non-taxable social security benefits (see Form 1040, lines 20(a)-20(b)); (2) tax-exempt interest (see Form 1040, line 8b), and excluded foreign earned income; and (3) 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 fluctuates year-to-year, enter low and high estimates for 2018 to explore how they affect the calculator’s results.
Here’s the calculator. If the pie chart below appears as a solid red ball, this means that the PTC will cover 100 percent of your monthly health insurance bill—a very good result indeed.
2018 PTC Calculator
|1||Enter Your State of Residence|
|2||Enter the Number of Persons in Your Family|
|3||Enter Your Monthly Premium|
|4||Enter Monthly Premium of Second Cheapest Silver Plan Offered to You|
|5||Enter Your Projected Modified Gross Income (MAGI) for 2018|
Run PTC Calculator!
|6||Your Household's Poverty Line|
|7||Federal Poverty Line Percentage (FPLP) [Line 5 / Line 6]|
|8||FPLP Rounded to a Whole Number [Line 7 Rounded]|
|9||Applicable Percentage [From 2016 Form 8962 Instructions, Table 2]|
|10||Amount to be Subtracted from Line 4 [(Line 5 * Line 9 )/ 12]|
|11||Monthly Premium Tax Credit [Line 4 - Line 10; or 0 if Line 10 = 0]|
|12||Monthly Net Cost of Premiums [Line 3 - Line 11]|
Note: values for the Applicable Percentage figure as reported on line 9 are based upon the expected premium contribution levels as listed in the August 17, 2017 draft of the 2017 Form 8962 Instructions. The IRS won't release the final 2018 Form 8962 instructions until late 2018.
Tax Planning Notes
Choose the Best Plan. During open enrollment, run each of the plans you're interested in buying through the calculator. Compare the results. Which plan has the lowest net premiums after backing out your projected PTC?
Qualify for Free Health Insurance. On line 5 of the calculator, keep entering progressively higher amounts for MAGI until line 12 shows that the monthly cost of premiums is just above zero. Then reverse course. Keep cutting the MAGI number by a few dollars at a time until line 11 of the calculator reports a monthly premium tax credit that is just barely higher than the monthly premium reported on line 3. (It might take several attempts before the numbers come out right.) Using this basic approach, I've qualified for free health insurance every year since 2014. For details about my continuing quest for FREE health coverage, see my tax plan for 2017.
Avoid Medicaid. You can also use the PTC Calculator to avoid Medicaid coverage (if indeed this is something you wish to avoid). Medicaid eligibility is based upon your family's Federal Poverty Line Percentage (FPLP) (see line 8 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 Centers for Medicare and Medicaid Services (CMMS) (click here). Several cautions apply to using this chart. First, it contains information current as of June 1, 2016. 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, most 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 boost your MAGI until you reach an FPLP of at least 138% (as reported on line 8 of the calculator).
One last note about avoiding Medicaid. As the CMMS eligibility chart reports, adult households subject to the nation's highest FPLP thresholds for Medicaid are those located in: (1) the District of Columbia, where the FPLP threshold is 210%; (2) Minnesota, where the FPLP threshold is 200%; and (3) New York state, where the FPLP threshold is 200%. If you reside in any of these jurisdictions and prefer Obamacare to Medicaid, make sure that you exceed the elevated FPLP threshold. Consult with an expert who knows the local rules.
Defer or Accelerate Income. The calculator can tell you how much your PTC might change if you accelerate extra income into 2018 or, alternatively, defer receiving it until 2019. For example, if accumulated gains on stocks you now hold would push you over 400% of the Poverty Line (line 8), you might delay selling them until after January 1, 2019 (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 2018, or, alternatively, by deferring them into 2019. Such adjustments include paying student loan installments early, funding Health Savings Accounts, accelerating 2019 tuition payments into 2018, and more. For a full list of possible adjustments, review lines 23 - 35 of Form 1040.
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The tax code is a dense labyrinth filled with many traps for the unwary—and this is especially true when it comes to the complex rules that govern Obamacare. The PTC Calculator will point you in the right direction, but confirm what it tells you by consulting a competent tax advisor who knows your circumstances.
If you'd like to explore my other articles about Obamacare, click these links:
- 2017 Obamacare Premium Tax Credit Calculator Version 2.0
- 2016 Obamacare Premium Tax Credit Calculator Version 2.0
- 2015 Obamacare Premium Tax Credit Calculator
- Better Than Free: How Obamacare Enriches Me