ACA Tax Credit and Unemployment Compensation: What You Need to Know
Introduction:
If you received unemployment compensation in 2020, you may have questions about how it affects your Affordable Care Act (ACA) health insurance premiums and tax credits. In this blog, we’ll explain how unemployment compensation is treated under the ACA and provide guidance on what to do if you’ve already filed your taxes.
Exclusion of Unemployment Compensation from Income:
The American Rescue Plan Act of 2021 excluded the first $10,200 of unemployment compensation from federal income tax. This means that the amount of unemployment compensation you received up to $10,200 is not included in your taxable income.
Important Note: While unemployment compensation is excluded from taxable income, it is still considered income for the purpose of calculating your Modified Adjusted Gross Income (MAGI). MAGI is used to determine eligibility and the amount of premium tax credit you receive.
Impact on ACA Tax Credits:
Since unemployment compensation is included in MAGI, it can affect the amount of premium tax credit you receive. If your MAGI increases, the amount of tax credit you receive may decrease. This is because the tax credit is based on a sliding scale, with higher MAGIs resulting in lower tax credits.
What to Do if You’ve Already Filed Your Taxes:
If you’ve already filed your taxes and received your premium tax credit, you will need to determine if you are eligible for a larger tax credit due to the exclusion of unemployment compensation. The IRS is working on updating their systems to automatically adjust tax returns, but it’s recommended that you wait for further guidance from the IRS before filing an amended return.
Seeking Professional Help:
If you have any questions or concerns about how unemployment compensation affects your ACA health insurance premiums and tax credits, it’s advisable to consult with a licensed health insurance agent. They can provide you with personalized guidance based on your specific situation and help you maximize your tax benefits.
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