Tax Tips and Tidbits
Steven R. Anderson E.A.,
Master Tax Advisor, H&R Block, Pawling, NY
Last week we discussed the reporting documents and tax forms related to the affordable care act. I said that it would be a two part Tax Tip and Tidbits, but this topic is so complex that it deserves a third part. Today we will discuss the Premium Tax Credit (PTC) and the Advanced Premium Tax Credit (APTC). Next week we will get to the promised penalty exceptions.
- Eligibility for the Premium Tax Credit (PTC). Individuals that enroll in health insurance through a Marketplace may be eligible for the PTC to help cover the cost of the insurance.
- To be eligible for the PTC, an individual must:
- Enroll in a qualified health plan through a Marketplace and
- Have household income between 100% and 400% of the federal poverty level;
And must not:
iii. Be eligible for coverage through an employer or government plan;
- File Married Filing Separately (except for certain victims of domestic abuse and spousal abandonment); or
- Be claimed as a dependent on another person’s return.
- Individuals who already have minimum essential health coverage (such as affordable employer-sponsored coverage, Medicare, Medicaid, or CHIP benefits) will not be eligible for the PTC. Employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.5% of the individual’s household income for the tax year.
- 2. Advance Premium Tax Credit (APTC). Eligible individuals may choose to receive some or all of the credit in advance or claim the credit when they file a tax return.
- Initially, the Marketplace will estimate the amount of the taxpayer’s APTC based on information reported on the most recently filed tax return.
- The APTC will be paid directly by the government to the insurance company. The amount of the APTC depends on the taxpayer’s family size, household income, and other factors. Generally, the APTC is the difference between the cost of the second-lowest cost silver plan and the taxpayer’s contribution amount. The taxpayer will be responsible for paying for the remaining cost of the insurance policy.
- Household income for PTC purposes is AGI plus nontaxable social security benefits, excluded foreign earned income, and tax-exempt interest for the taxpayer, spouse (if filing MFJ), and any dependents with a return filing requirement.
- 3. Reconciling the APTC and PTC. For 2015, the PTC is calculated on the 2015 tax return based on the taxpayer’s actual 2015 income and other information. All taxpayers who received an APTC in 2015 are required to file a 2015 return, even if they are below the filing threshold.
- If the taxpayer receives too large of an advance, the taxpayer will need to repay the excess advance payments as an additional tax. However, the maximum amount of repayment will be limited if the individual’s household income is less than 400% of the federal poverty level.
- If the taxpayer received too little of an advance, the taxpayer will be eligible for a refundable tax credit.
Note: It is important that the taxpayer report changes in income and family size to the Marketplace as they occur throughout the year.
- The result is shown in Form 8962, Premium Tax Credit (PTC).
- A net refundable premium tax credit is allowed when actual PTC is greater than APTC. A net credit is reported on: Form 1040, line 69, or Form 1040A, line 45, or Form 1040-NR, line 65.
- Repayment of an excess advance premium tax credit is required when APTC is greater than actual PTC. The repayment is reported on: Form 1040, line 46, or Form 1040A, line 29, or Form 1040-NR, line 44.4
- The APTC and PTC are disregarded for purposes of determining eligibility for Federal programs.
- Individuals who enroll in coverage through a Marketplace will receive Form 1095-A. And are required to file a return and attach form 8962.
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