With the proposed AHCA (aka Trumpcare)—passed by the House, but not yet the Senate—you would receive an age-and income-based fixed credit, rather than a deduction, upon filing your tax return. Someone under 30 would receive $2,000 per year; between 30 and 39, $2,500; between 40 and 49, $3,000; between 50 and 59, $3,500; and 60 and above, $4,000. The sum amount of the credit cannot exceed $14,000, a maximum that comes into play for families with children. If your Modified Adjusted Gross Income (MAGI) income is $75,000 filing singly or $150,000 if married filing jointly, then the tax credit is reduced by 10% of the excess. For example, a family of four makes $200,000. Husband and wife are in their 40’s. Looking at age alone, the total tax credit is $10,000 ($3K+$3K+$2K+$2K). However, because income is $50,000 over the $150,000 limit, the credit is reduced by $5,000 ($50,000 multiplied by 10%). With AHCA, this family’s credit would be $5,000. If that family’s income increases to $250,000, they would no longer receive a credit.
Those with grandfathered plans—coverage held with no changes since March 2010—do not qualify for the tax credit. That’s unfortunate, but very few clients have grandfathered plans. Another exclusion for tax credits in the AHCA is health insurance coverage of abortions. If your plan covers abortions, then you will be ineligible for the tax credit.
What stays the same in both plans is disqualification from the tax credit if you are eligible for (not even enrolled in) a group health plan, a non-citizen or non-national or non-qualified alien, or incarcerated. Keeping a popular ACA provision, children up to age 26 can continue to be covered on a parent’s AHCA plan when listed on the tax return.
The winners? The biggest winners are middle-income Americans: Single tax filers whose incomes are between $48,240 (our current tax credit upper threshold) and $75,000, as they would receive some relief. Also, married joint filers whose incomes are between $64,960 and $150,000 (for a family of two); $81,680 and $150,000 (family of three); $98,400 and $150,000 (family of four); $115,120 and $150,000 (family of five). The losers? Those in the lower income ranges who are older (around 40 and above) generally receive a higher tax credit currently than they would under the AHCA. This will vary greatly depending on age of the client, family size, and their income estimate. Additional losers are those who don’t have the cash flow to wait until their taxes are completed to receive the credit.