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Health Reform 101

with Lisa Zamosky

WebMD helps readers understand their health insurance and the new health care reform law. The Affordable Care Act is bringing sweeping changes to American health care. Lisa Zamosky is here to help you navigate the health care maze and understand how these changes affect you.

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Thursday, June 13, 2013

Health Reform Tax Credits: What Income Counts?

By Lisa Zamosky

money and calculator

A few weeks ago I wrote a blog post about the various ways in which people who choose to retire early may benefit from the Affordable Care Act.

Starting in 2014, you can no longer be turned down by insurers for a pre-existing health condition, and new limits on how much you can be charged because of your age will also be in place. That means those who have delayed retirement for fear of losing health benefits, will once again be able to consider stepping back from work.

In my earlier post, I discussed that under the law, early retirees may have access to less expensive coverage as a result of new subsidies that will be available to help people better afford insurance. You’ll qualify for subsidies in the form of tax credits, if you make less than about $46,000 annually.

One reader left a comment in response to the blog that I thought was important and worth addressing.

Here’s what he had to say:

Overall the author has written an informative article. However, the following point is not clear.

The article is addressing the situation of early retirees. But Point #3 says, Government subsidies are available to people earning less than $46,000 annually.

Retirees may not have earned income. They may have pensions or withdraw funds from IRA accounts totaling less than $46,000 annually. Are they eligible for a subsidy?

What about the retiree who withdraws less than $46,000 per year, but can afford to withdraw more, but doesn’t want to because they want their savings to last longer?

What Counts as Income?

The reader asks a very important question. Particularly in talking about retirees, I should have included the various types of income that counts when determining whether or not you’re eligible for a tax break under the health reform law.

Aside from salary or money earned from your own business, here are the sources of income that will count toward the tax credit calculation:

  • Unemployment insurance
  • Pensions
  • Social Security income
  • Funds pulled from retirement accounts
  • Alimony
  • Rental income
  • Royalties

It’s only income – not one’s assets – that will be factored when determining whether or not you qualify for financial assistance from the federal government to help pay for the cost of your insurance. That means even if you’re able to pull more than $46,000 out of retirement accounts, you’ll still qualify for help as long as you keep your withdrawals and income below that threshold.

What questions do you have about the new health insurance marketplaces? Please sound off in the comments section below.

Posted by: Lisa Zamosky at 2:36 pm

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