Can someone explain how Obama's health care tax credit works?

[laconicsax]

http://www.whitehouse.gov/issues/health_care/plan/

Provides new tax credits to help people buy insurance. The President’s plan will provide new tax credits on a sliding scale to individuals and families that will limit how much of their income can be spent on premiums. There will also be greater protection for cost-sharing for out-of-pocket expenses.

Let's say that someone can't afford insurance and they qualify for some amount of tax credits. How does this work?

Do they just have to pony up the money even though they can't afford and get it some of it back once a year in the form of a tax rebate? Do they pay whatever they're told they can afford and the government pays the rest directly to the private insurer?

[Hello_Kitty]

1. Typically, with a tax credit you have to wait until you file your taxes.

Maybe they'll come up with some kind of voucher for people who don't have the money to pay up front but I don't know. I'd definitely prefer a direct subsidy to a tax credit because people are going to be furious if they don't have use of their money for a full year. Also, I have a bad feeling it's going to cause people to rely on credit cards more, both to pay the out of pocket insurance costs and for everything else.

[SoCalDem]

2. B.I.N.G.O. or they will use the Nat'l Bank of Mom & Dad

If you don;t have it when you need it, you will either borrow or do without.. It's just that simple.

and

what if your "tax due" end up being $238.57, and your "tax credit" is $3,256.13? Does the IRS mail you a check for $3,017.56?

[Hello_Kitty]

5. I hope not. It should be a direct subsidy for the insurance. eom

[laconicsax]

4. That's what I thought.

What the hell use is a tax credit if you're required to buy something you can't afford?

[lumberjack_jeff]

3. In HR3200 the insurance exchange administers "affordability credits"

The net effect is that the subscriber only pays for the difference between the actual premium and the subsidy they are entitled to. I *think* they pay it to the exchange administrator, who in turn pays the insurer.

[Hello_Kitty]

6. I hope the exchange administrator handles the subsidies or affordability credits or whatever.

There should be as little onus as possible on the policyholder for figuring out who gets what.

[Igel]

7. Tax credits come in two flavors.

The first kind can never take the amount you owe negative: At the end of the arithmetic you're presented with an injunction: If the amount of taxes you owe is less than or equal to zero, write 0 in the blank. Call this one the 'non-refundable' or traditional kind of tax credit.

The second kind can take the amount you owe negative: You figure out the taxes you owe and subtract all the tax credits and payments from it. If you're in negative territory, then the government owes you money back. Note that if the amount of taxes you owe is $0 because you have no income, and you have an $8000 tax credit, you get a $8000 tax refund. Free money. Well, that's how it seems. This is a 'refundable tax credit.'

So assuming that the tax credit Obama's talking about is refundable--most of the time it has been--then you pay and get reimbursed when you file your 1040. Or, since this is likely to occur the year *before* the requirement kicks in, you'd probably get paid in advance (but that's a guess on my part).