Health Insurance Now Tied To Taxes

This year's tax return could play a key role in your health insurance coverage starting next year.

The amount you earned last year will be used to help determine if you qualify for a government subsidy to purchase health insurance in 2014 under the new health care laws. If you don't have insurance in 2014, you'll pay a penalty, which will also be based on your 2012 income.

The Patient Protection and Affordable Care Act "will really change the landscape of how insurance will be procured and the way people look at their tax return," says Meg Sutton, senior adviser for tax and health care services with H&R Block.

Starting Jan. 1, nearly all Americans will have to have health insurance coverage as part of health reform. (See: "Health reform sticks: Now what?")

Those who purchase insurance through state health exchanges, which are online marketplaces where you can compare and shop for plans, may be eligible for federal subsidies, depending on their income and household size. Perhaps surprisingly, subsidies are available for those who earn up to 400 percent of the federal poverty level, though the size of the subsidy is greater for those who earn less.

Those who already have insurance through their employer can retain that coverage.

Aid for health insurance cost to come in form of tax credit

For a family of four, that means those earning between $23,000 and $92,000 in 2012 would be eligible for a subsidy, which would come in the form of a tax credit, says Cigna spokesman Joseph Mondy. About 19 million people who purchase health insurance through a state exchange are expected to be eligible for a subsidy.

"This is a wide-sweeping change for the middle class," Sutton says.

Each state must have an exchange in place by October and start enrolling clients at that time. Some states will set up their own exchanges; in other cases the federal government will run the state exchanges.

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