How do tax credits work under the Republican proposed American Health Care Act

In My Humble Opinion
1

How do tax credits work under the Republican proposed American Health Care Act?

2

There is no legitimate answer to the question because there is no final legislation. Even after it may become law, the affected agencies need to develop the regulations and polices, along with instructions, before any of us can get into selected aspects, like tax credits.

3

Thanks Duckster. I’m wondering how “tax credits” will work for a single mother who makes less than 30K per year.

4

All tax credits work the same. They are deducted from the total amount you pay in taxes unless the AMT complicates things. If you were going to pay 5 grand in tax and get a 2 grand tax credit you now pay 3 grand in tax. As a working mother with a low income you probably do not pay income tax and receive EITC instead. This would mean whatever the tax credit amount is would be added to your EITC total.

5

Right but this doesn’t get applied throughout the year to help offset the monthly premiums you’re paying to the insurance company. You get them at tax time. Which…is useless if you can’t afford to pay the premiums month to month to get to that point.

6

So is a tax credit potentially a refund check you get at the end of the year if the tax credit one gets is greater than taxes owed?

7

Wikipedia says “Age-based refundable tax credits for premiums, phased out for higher incomes”

Refundable = gives you money if any is remaining after your tax liability is reduced to zero. Just like EITC and additional child tax credit, but unlike normal education or saver’s credit.

8

EITC can be arranged so that it comes throughout the year and not just a lump sum at tax time. So it is possible that any insurance tax credit will be arranged in a like manner.

9

If you know you are getting the credit you can arrange for less money to be taken out of each paycheck, but it can also be done in a lump sum like a withholding refund is.

10

Well, I guess my question is now moot.

11

There are “refundable” credits and “non-refundable” credits. A non-refundable credit reduces your taxes, but not below zero. e.g. if your tax bill is $567, but your residential energy credit is $592, your taxes would get reduced to zero, but no less. OTOH, refundable credits are paid to you. The easiest example is withholding. Even with zero taxes, your withholding is refunded. On form 1040, non-refundable credits are on lines 48-54. Refundable credits are on lines 64-73.