At Regency West, we help you explore assistance opportunities and find a plan that fits your needs. In this post, Covered California explains how to take advantage of financial help and avoid tax penalties when enrolling for health insurance.
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.
Health Insurance Tax Credits
Health insurance tax credits are financial help from the federal government that lowers your monthly premium. That’s why they are specifically referred to as premium tax credits. Applying for insurance through Covered California is the only way to receive this help.
If you qualify, you can receive financial help as a reduction to your monthly insurance premium. You can also choose to receive this money as one lump sum come tax time. Financial help is based on your household income. That means, if you end up making more or less money than when you applied, then the amount of your financial help could change. To avoid any surprises come tax season, report these changes to Covered California.
Applying for Financial Help
You can only apply for financial help through Covered California. Whether or not you qualify — 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 this interactive calculator to find out how much financial help you can get to pay for health coverage. You can then explore the costs of plans in your area by using the Shop and Compare tool. Remember, you can receive financial help as a monthly reduction of your premium cost or as one lump sum at tax time – it’s up to you to choose the option that best suits your needs.
Self-Employed and Small Business Owner Tax Deductions
For self-employed workers, there is a unique self-employment tax deduction that allows independent contractors to deduct 100 percent of their health insurance premiums up to their income level for themselves, their spouse and their 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 also 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 employees’ 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 any health insurance at all, you may face a penalty come tax time. For tax year 2022 this penalty could cost at least $850 for every adult in your household plus $425 for each dependent child. A family of four could owe a minimum of $2,550, 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. You can learn more about these exemptions, and how to avoid a tax 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.