A big part of the Affordable Care Act, or Obamacare, legislation was the creation of the Marketplace where people without access to a workplace health insurance plan could shop for and purchase an individual policy. This was good news for many independent pastors because a lot of small churches simply cannot afford to offer health care benefits.
How Obamacare Subsidies Work
Not only did Obamacare create the Marketplace but it also created government subsidies, or tax credits, to help people pay their premiums. Subsidy eligibility is based on income, beginning at 400% of the federal poverty level. For example, the federal poverty level for a family of 4 is $26,200 so if a 4-person family’s income is $104,800 or less, they should be eligible for a subsidy. Those at or below the poverty level are usually eligible for Medicaid instead of subsidies. Click on the link above to see the federal poverty level based on household size.
The subsidy is based on income during the year of coverage, so if you sign up for 2021 coverage today, you will need to estimate your 2021 income for them to calculate your subsidy. If you overestimate, you will have to pay back the excess at the end of the year. If you underestimate, then you could get additional tax credits at the end of the year.
How The Pastor’s Housing Allowance Affects Income
When it comes to income-based programs, pastors always have the same question: Does my housing allowance count as income? That’s a really good question to ask because the answer varies by program. For some things it does and for some things, it doesn’t. You can read all about that in my book about the housing allowance.
When it comes to the Premium Tax Credit, the official name for the Obamacare subsidy, the housing allowance DOES NOT count as income. This is the way that they calculate income:
Adjusted Gross Income (AGI)
+Non-Taxable Social Security Benefits
+Tax-Exempt Interest
+Excluded Foreign Income
=Modified Adjusted Gross Income (MAGI)
Your AGI comes from your tax return, Form 1040, and does not include the housing allowance. Neither is it added back in, like excluded foreign income, tax-exempt interest, and non-taxable Social Security benefits. This is the same calculation that they use when computing income for Medicaid and the Children’s Health Insurance Program (CHIP) as well.
Obamacare Open Enrollment Is Now
Open enrollment for 2021, when you can sign up for a new Marketplace plan, began yesterday and goes until December 15. So, if you need health insurance now is the time to get it. If you want to learn more about your options beyond the Obamacare Marketplace, read this article.
