2016 Covered California Tax Credits - Most Common Mistakes

Health insurance tax credit



IMPORTANT UPDATE - Get updated info for 2018 Tax Credit here.



The Affordable Care Act (Obamacare) can really be boiled down into one, all-powerful effect.


The Tax Credit!


Also called the Subsidy, it really is the heart of the law.

The rest is just window dressing, albeit important. What really matters to most Californians is simple.


Health insurance cost!


The tax credit is the remedy to that long running ailment of our health care system.


Put simply, the Tax Credit means $1000/year in savings.


Based on the 1000's of successfully enrolled Covered Ca members, a quick snapshot:

  1. Average tax credit of $302
  2. 88% of Californians qualify for a tax credit
  3. 51% of Enrollees qualify for Enhanced Silver Plans

These are big numbers!


It's not unusual for us to see a net premium of between $10-60 month...


regardless of age!


We'll explain the age piece later but first, let's look at everything you need to know about the tax credit!


IMPORTANT NOTE: 50% of self-enrolled members accidentally used wrong income info


This last piece is crucial.


The process of determining tax credits is tricky to someone who doesn't do it everyday.


We do the calculations EVERY DAY! Many times a day in fact so let us help you.


As certified Covered California Agents, there's no cost for our Service. Call 800-320-6269.


You can jump right to the Covered California quote with Tax Credits here:

Quote Covered California with tax credit


On to the tax credit and how to avoid the biggest mistakes!

What is the 2016 Tax Credit Based On?


The primary driver of the 2016 tax credit is income. There are other inputs, but income drives everything.

Basically, we want to estimate our year's gross income.


Officially, it's the MAGI (Modified Adjusted Gross Income).


That's accounting speak for your adjusted gross income plus a few less common sources of income such as foreign income, non-taxed interest, Social Security.


For most people, line 37 on the 1040 is the number to look at!


A few important causes of mistakes on the income piece:

  1. W2 employees will use their gross income
  2. Self employed people will look at their net business income
  3. We want to estimate for the year in which we'll be covered
  4. Spousal support is included but child support is not
  5. Disability is included if it ended unemployment
  6. We need household income (all people that file on one 1040) even if not enrolling


These are just few items to look at on the income front. Most of the mix-ups we see with self-enrollees has to do with income.

Call us at 800-320-6269 and we can quickly size up your income estimate in 5 minutes

What Period of Income do we look at?


Period of income for tax creditA common mistake deals with the timeframe people use for their estimate.


We want to estimate income for the year in which we'll be insured and eligible for a tax credit.



Let's look at an example.

If we're in October of a year and considering coverage for the following year, we'll actually want to estimate for that following year!

This can be tough. Especially for self-employed people.


We have to go with our best estimate and adjust in the system (we can easily do this for our members with a quick email) when we have better information.


Why is this important?


Let's say we're in October 2015 or close to Open Enrollment and we enter in our line 37 from prior year (2014). That number was $25K. Great, we'll get a tax credit for next year (2016).

What if over the course of 2016, we make $35K or higher. Come tax time the following year (April 2017), we'll probably have to pay back part of the tax credit.


All at one time.


We want to avoid this tax filing shock.


Keep in mind that it goes the other way too.

If we estimate $35K and received a tax credit but our actual income came back at $25K, we'll recoup the extra tax credit at tax filing time.


The net net...go with your best estimate for the year you'll receive the tax credit in.


What if your income situation is changing mid-year or more complicated, call us at 800-320-6269

What is the definition of Household?


We speak with many people that accidentally use the wrong number of people.

The tax credit calculation basically looks at two pieces:

  1. How much household income (all file together on 1040)
  2. How many people does that support (all on same 1040)


Household is another place where people make mistakes!


Remember, our goal is to get the maximum tax credit but AVOID shock at tax time


Here are some common mistakes on the household number front:

  1. Include people that file under one 1040
  2. Married people that file separately will not be eligible for a tax credit
  3. Location doesn't matter if you file taxes together
  4. Children can remain on family plan (if claimed on taxes) till they turn 26
  5. Parents and other family members are part of household if claimed
  6. Many people will not include family members because they already have coverage.


#6 brings up two issues.


We need all family members on one 1040 in the account, even if not enrolling.


If a spouse/parent has employer health insurance, we may not be eligible for a tax credit


The first is in our interest (bigger household) but the second can be an issue.


The calculation is complicated but basically, if a spouse/parent is offered "affordable" group health insurance for just the employee, the dependents may not be able to get a tax credit at Covered Ca.

This piece is tricky and we need to ask a few questions to really see if there's a way around the rule.


Get your Covered Ca quote here:


Quote family coverage in california

Call us at 800-320-6269 regarding any questions on Household size and who to include. Our service is free to you!

How is the Tax Credit Taken?

How is tax credit takenOfficially, it's called an Advanced Payment Tax Credit.


This is government speak to say that you don't have to wait for April to take the credit.



It comes right off your monthly health insurance premium!


You'll get an invoice from the carrier for the net premium (after tax credit is taken out)


This is great news!


It's not uncommon for us to see a premium come down from $500 to $75 with the tax credit applied.


We even see monthly premiums of $1/monthly (the minimum required by law).


The tax credit and monthly premium will stay the same for the full calendar year (Jan 1st-Dec 31st).


Any increases for age change will not apply until Jan 1st.


Keep in mind that most people with tax credits will not see rate increases since the law keeps their premium to a percentage of income.

If we make income estimate changes during the year, the tax credit will adjust accordingly during the following month.


One note. Covered Ca manages the tax credit, not the carrier.


Questions on income and tax credit are addressed with Covered Ca for this reason.

We do see situations where the tax credit is removed on a member's invoice.

This is usually because the member has not submitted request back-up info to support income estimate, residency, or citizenship.


We can help with this process at 800-320-6269.

Effect of Employer Sponsored Health Insurance on Tax Credit


This gets tricky as we mentioned above.


You may not be eligible for a tax credit if you meet these:

  1. You or your spouse is offered qualified health insurance from an employer
  2. Employee only cost less than 9.5% of the employee's gross income
  3. Even if the dependent cost is very expensive, the law only looks at employee only cost.

There are many people that taking tax credits and may have to pay it ALL back in April.


Companies have to submit a form which shows the employees that they enroll on group health plans.

The IRS will compare this with the Exchange tax credit list.


If you're names on both, that could be trouble.

Call us at 800-320-6269 and we'll see if we can still get the tax credit

These are the common issues we see with the tax credit:


  1. Many people are getting tax credits they will have to pay back
  2. Many people are not getting tax credits that they are eligible for


Both are bad!


Call us at 800-320-6269. 5 minutes and we'll help you get the best tax credit.


As Certified Covered Ca agents, there's no cost for this service.


Related Pages:  10 Invaluable Tips to Successfully Comparing Covered Ca Plans


We have helped 10's of 1000's of Californians across the State make this same comparison.

We're getting pretty good at it!


 Quote Covered California health plans with Tax Credit to view rates and plans side by side for both carriers...Free.


Again, there is absolutely no cost to you for our services.  Call 800-320-6269 Today!

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We can quickly (very important) size up your health insurance needs and clearly explain the options available to you. Our focus is finding the most coverage at the best cost to you.

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