Ivan writes: With the Affordable Care Act, how much of the premium is offset by tax subsidy? How do taxpayers know?
Ivan: Starting in 2014, close to half of Americans buying health care on the exchanges will be eligible for tax credits to help offset the cost. The Kaiser Family Foundation estimates the average subsidy will come to roughly $5,500 or about two-thirds the cost of the premium.
Your personal subsidy will depend on your family’s income and the cost of insurance available to you on the exchange, according to Joane Goodroe, health care expert and president of Goodroe Healthcare Solutions. What makes this so hard to quantify, Goodroe says, is due in large part to the varying cost of health insurance in each state.
The subsidy will equal the difference between the premium for the second-lowest-priced silver plan (also known as the benchmark plan) and a specified percentage of income. In 2014 the percentage will range from 2% for those with incomes below 133% of the federal poverty level and goes up to 9.5% for individuals and households with incomes up to 400% of the poverty level (which is about $24,000 to $94,000 a year for a family of four in 2014).
“Incredibly dense and complicated is the best description for the tax subsidy,” says Goodroe. She recommends you check out this subsidy calculator at iHealthCareUpdates.com to help figure out your individual credit. For example, a non-smoking, single 25-year-old earning $28,000 a year would, according to the calculator, receive a tax credit of up to $835 or 27.5% of the overall premium.
Abigail writes: My husband and I are in our early 30s and we own a home. We are aggressively trying to pay this off by placing an extra $1,000 towards the mortgage each month no matter what life throws at us. Is this a good move or is refinancing still a better option? I just don't want to pay for another closing cost.
Let’s focus on your last sentence: “I just don't want to pay for another closing cost." You say you’re willing to pay an extra $1,000 a month, or $12,000 a year, to pay off your mortgage faster. But paying – at most – a few thousand dollars to refinance your home in order to pay less interest over the life of the loan is not something you think worth doing? I’m all for aggressively paying down debt, but I wouldn’t dismiss a refinance just because of the potential closing costs.
It sounds like you and your husband want to live in this home for many years to come, right? If your current interest rate is above 5%, you may want to shop around for a lower rate and optimize your loan. The interest savings – over a year or two -- should more than make up for the closing costs.
From there you could certainly put more money toward your mortgage to pay it off sooner, but I wouldn’t do so until you have a six- to nine-month rainy day reserve, robust retirement savings and no outstanding debt with a high interest rate.
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