We received an interesting question from one of our partners yesterday, so we thought we’d share the answer with you. His question was:
How can I determine the maximum premium as a percent of income an individual or family would pay for the benchmark plan (the second-lowest-priced silver-level plan)? The only tables I have found show the premium cap for 100%, 133%, 150%, etc.
That’s correct – the government didn’t prepare a table to show the premium cap for every income level in relation to the FPL – 158% or 272%, for instance. Instead, we were given a table that shows some breaking points, and from there we can calculate the formula.
The table was included in the Affordable Care Act but repeated in the final rules implementing the premium tax credit. Here it is:
In the final rules, the IRS gives us an example of how we can calculate the credit for a given income:
(i) Bonnie’s household income is 210 percent of the Federal poverty line for Bonnie’s family size. In the table above, the initial percentage for a taxpayer with a household income of 200 to 250 percent of the Federal poverty line is 6.3 and the final percentage is 8.05. Bonnie’s applicable percentage is 6.65, computed as follows.
(ii) Determine the excess of Bonnie’s Federal poverty line percentage (210) over the initial household income percentage in Bonnie’s range (200), which is 10. Determine the difference between the initial household income percentage in the taxpayer’s range (200) and the ending household income percentage in the taxpayer’s range (250), which is 50.
Divide the first amount by the second amount:
210-200 = 10
250-200 = 50
10/50 = .20
(iii) Compute the difference between the initial premium percentage (6.3) and the second premium percentage (8.05) in the taxpayer’s range: 8.05-6.3 = 1.75
(iv) Multiply the amount in the first calculation (.20) by the amount in the second calculation (1.75) and add the product (.35) to the initial premium percentage in Bonnie’s range (6.3), resulting in Bonnie’s applicable percentage of 6.65:
.20 × 1.75 = .35
6.3 + .35 = 6.65
Piece of cake. Of course, if you’d like to help your clients access the premium tax credits without having to do all the math, there is a way. Find out how.