What is Premium Tax Credit?
The premium tax credit is a federally funded program that reduces the cost of insurance premiums when you purchase coverage through the Health Insurance Marketplace. The credit is available to individuals and families with incomes that are below the federal poverty line who also meet other criteria.
What is the process?
When you apply through the Marketplace for health care, you estimate the family income to help your insurer determine how much of a premium tax credit you will receive. This credit is then sent directly to your insurance company, lowering your monthly premium costs.
When you purchase your policy, your insurer may send you "Health Insurance Marketplace Statements" (also known as a 1095A) if you qualify for a tax credit. The form will also report the amount of the premium tax credit you are entitled to.
Your premium tax credit will be based upon your estimated household earnings and the size and number of dependents in your tax family. This includes you, your spouse (if you're filing a joint tax return), and your children. If you change your income during the year or if the size of your family changes, your premium credit will also change.
What happens when your income exceeds what you expected to earn?
If your income goes up during the year, you may have to pay back part or all of your premium tax credit. You are limited to a maximum of 400 percent. It is sometimes referred to by the term "clawback."
What happens when your income changes?
Marketplace needs to be informed of any changes as soon possible. This will help you avoid paying back excess premium tax credit at the end of the year.
The amount you have to pay back depends on your income and whether or not your income is above the poverty line. The instructions for Form 8962, which is used by individuals to report health insurance costs through the Health Insurance Marketplace, outline the rules.
What is the Form 8962?
You'll need the amount of your 2021 advance premium tax credit when you file your return. The amount that you will have to reimburse depends on the results from the reconciliation of your 2021 advance premium tax credit with the premium credit for the year.
On Form 8962, you reconcile the advance tax credit received in 2021. This form can be located on the IRS' website or your state's.
IRS also requires you to submit the results of the reconciliation for the advance premium credit received during 2021. This will be shown on your 2021 federal tax return, on Part III, line 29.
There are a few exceptions. Your household income must be above 138% poverty level in a non-ACA state or you may have received unemployment compensation in whichever week of 2021. These exceptions do not apply to 2021 income, but only to income reported for that year.