What You Need to Know About Obamacare and Your Tax Returns

The Affordable Care Act (ACA), commonly known as "Obamacare", requires all U.S. citizens and legal residents to enroll in health insurance. The effects of the Obamacare program on American society is plain to see, but what about the potential effects on your taxes? Below are three of the most common ways the Affordable Care Act can affect your tax returns.

1. If you are penalized for failure to enroll in a health insurance plan, the penalty will be subtracted from your tax return. Generally speaking, the penalty is calculated by taking the higher of two calculations - either the penalty is $95 per adult in the household and $47.50 per child in the household or it is 1% of the family's overall household income. The IRS will use whichever formula produces a higher number to calculate your penalty.

2. Families are able to qualify for financial aid in order to purchase their health insurance, though their household incomes first must meet federal poverty level. If your family qualifies for financial aid, you will receive the funds through a tax credit. This refundable tax credit is called a "premium assistance credit" and is variable based on family income.

3. You can receive an advance subsidy in order to reduce your health insurance premiums. However, the subsidy is based on your estimated income, so be careful when you calculate your estimate. If your estimated income results in a larger subsidy than your actual credit, the difference will be collected through your tax return.