When the government wants to encourage you to do something, they often offer you a tax credit. Examples include everything from buying energy-efficient appliances to purchasing health insurance. The bonus is that tax credits actually lower how much you owe and, even better, health insurance tax credits are actually refundable. Consider this, if you owe $2,000 in taxes and qualify for a tax credit of $2,500, you could get a check for $500.
Financial Help, Health Insurance & Your Taxes
Health insurance tax credits are financial help from the federal government that lower your monthly premium. That’s why they are referred to as premium tax credits. And Covered California, a free state-run service, has helped millions of residents receive these subsidies.
You can get this financial help as a reduction to your monthly premium. Or you can choose to receive it as one lump sum come tax time. The amount is based on your household income. So if you make more or less money than when you applied, your financial help could also change. Starting in 2026, you may have to pay back all the extra financial help you received if you qualified for less than expected. To avoid any surprises come tax season, report these changes to Covered California.
Applying for Financial Help
Whether or not you get financial help — and the amount — depends on your estimated income for that year, how many people are in your tax household, your age, and your ZIP code.
Check out our Shop and Compare tool to see just how affordable brand-name, quality health insurance can be in your area. Four out of 5 Covered California enrollees get financial help to lower their monthly premiums.
Self-Employed and Small Business Owner Tax Deductions
For self-employed workers, you may be able to deduct up to 100 percent of your health insurance premiums for yourself, your spouse and your dependents. How much you can deduct depends on your business income, eligibility for other health coverage and any financial help you receive.
Small business owners may be able to deduct health insurance expenses from their federal taxes. Some may also qualify for a tax credit to help cover the cost of insuring their employees. Eligibility depends on factors like the number of employees, their average wages and how much the business contributes toward their health insurance.
Use the Small Business Tax Credit Calculator to estimate if your business is eligible. Currently, only small businesses that buy health insurance through Covered California are able to receive this federal tax credit.
Avoid Tax Penalties
If you don’t have health insurance, you may face a penalty come tax time. Find out what potential tax penalties you may face without coverage and keep in mind, these penalties may vary from year to year.
However, there are many exemptions to this penalty, and most must be claimed at tax time except for the three granted through Covered California. Learn more about these exemptions, and how to avoid a penalty, by clicking here.
At the end of the day — and the end of the year — it is in your best financial interest to sign up for health insurance. Learn more or apply now through Covered California.
