The Affordable Care Act, also known as Obamacare, is tied to the federal tax system. With the tax deadline approaching fast (April 18th), this can actually create problems for self-employed individuals. Although it is always a good idea to get help from trusted websites, it is also important to have some knowledge of the fundamentals of Obamacare.
They are given below.
Premium Tax Credit / PTC
This is the core of Obamacare. The Federal government spurs this into action. Your healthcare insurance is lowered by providing a tax credit, which you can claim either by filing your tax return or by taking it in advance. For the latter, however, you have to make monthly payments, albeit at a lower rate.
Although people tend to take the second option frequently, it may present with problems if you have major changes in your income during the year.
Premium deduction is common and you can do it for yourself, your spouse and even your children up to 26 years of age. However, there are some limitations:
- Your deductions can not exceed your profit in business.
- You can’t use your premium for reducing your self-employment tax.
- Non-eligibility for participation in an employer plan.
Obamacare requires all individuals, including self-employed, to have Minimal Health Insurance or otherwise, pay a penalty. The only exception is if it costs more than 8% of your total income. In that case, you will not be liable to pay a penalty. But you will need to file a Form. The penalty is not cheap.
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