Working hard so you can retire early is a great goal, but you may need to save more than you originally anticipated. Most individuals who retire before they are eligible for Medicare have to find individual insurance policies in the market and those can cost anywhere from $8,000–$20,000 per year. This can put a damper on early retirement plans for some people — but you may be able to maintain them if you qualify for the premium tax credit (PTC).
Are you eligible for the PTC? Consider these five questions:
What is the PTC?
The PTC is a refundable tax credit designed to make monthly health insurance premiums more affordable for eligible individuals who are unable to obtain coverage through their employer or a government health insurance plan such as Medicare. In this case, a refundable tax credit simply means that if you do not use all of the credit available to you, the unused portion either will be used to reduce the amount of taxes you owe or will be added to your refund for the year.
Who Is Eligible?
Unfortunately, not everyone is eligible for the PTC. You must meet five main requirements in order to receive the credit:
1. You enrolled in health insurance coverage through the marketplace for at least one month in a calendar year in which you were not eligible for affordable coverage through an employer-sponsored plan, or eligible to enroll in government health coverage such as Medicare, Medicaid or TRICARE.
2. For at least one of the months during which you had coverage, your health insurance premiums were paid by the original due date of your tax return. These premiums could have been paid by you, someone else or advance credit payments.
3. You are within certain income limits — specifically between 100% and 400% of the federal poverty line for your family size.
4. You do not file a married-filing-separately tax return.
5. You cannot be claimed as a dependent by another person.
As an example of the income restriction, a family of two in 2019 would need to keep their income between $16,460 and $65,840 in order to qualify for the PTC. However, if the family’s income goes above the applicable income range, they would have to repay the entire amount of the credit already received for that year. You can learn more about the eligibility requirements on the IRS website here.
Where Do I Find a Marketplace Policy?
The health insurance marketplace (also known as “the exchange”) is a service intended to help people find and enroll in affordable health insurance. The HealthCare.gov website is the easiest place to find a marketplace policy. After the site asks you a few simple questions about your household and income, it will calculate your estimated credit and then list out the various policies you are eligible for with a brief overview of each one. If you click on the policy, it will give you a more detailed description of its coverage and benefits. You can also select a few different policies and compare them side by side. Then, every policy will give you the option to “Take the Next Step” and enroll in the plan so that you don’t have to go out and find the specific policy you want on the provider’s website. It’s a one-stop shop!
When Can You Apply?
If you are eligible for the PTC and want to apply for a marketplace plan, act fast — there is a short enrollment period. Applications are only open for a month and a half, typically toward the end of the year. Enrollment for 2019 health insurance plans begins on Thursday, November 1, 2018, and ends on Saturday, December 15, 2018, so be sure to mark your calendars! If you miss the window, you’ll have to wait until next year to apply.
Why Should I Apply for the PTC?
Even if you are financially secure and do not need this credit, it doesn’t mean you shouldn’t take advantage of it, if possible. If you are approved for the PTC, there are two main advantages to utilizing it. First, your expenses will be reduced, which will free up cash flows and allow you to put more funds toward other expenses, fun activities, investments, etc. Secondly, if you have an investment account, you won’t have to withdraw as much money to pay for your premiums. This allows you to keep your cash invested so it can continue to grow and ideally provide a greater benefit in the long term.
The benefit you receive from the PTC can help you get through hard financial times, free up room in your budget for more fun purchases or even retire early. It never hurts to look so click here to see if you could be eligible for the credit and view the policies available to you! Just be sure to consult your financial advisor and CPA to make sure it’s the right fit.