Understanding the new ACA Premium Tax Credit
If you purchased a qualified health plan through the Health Insurance Marketplace under the Affordable Care Act (ACA), you may be entitled to a tax credit on your individual tax return. The Premium Tax Credit is calculated and reported on a new IRS Form 8962 which is filed along with the Form 1040. This credit assists taxpayers with the cost of maintaining health insurance coverage.
The amount of the credit is determined based on the family size and the amount of household income. In addition, there are also certain criteria and exclusions for the credit. For example, the taxpayer cannot be eligible for coverage through their employer or a government plan, the taxpayer’s income cannot be more than 400% of the federal poverty line, and the taxpayer cannot be claimed as a dependent on another return.
As a participant in a qualified health plan, your insurance company will be issuing you a Form 1095-A. This form will include all of the information that you or your tax preparer will need to produce the Form 8962 and determine if you qualify for the credit. The Form 1095-A will include information such as who in the household was covered, the amount of the premiums paid, and amount of advanced payments made to the insurance company, and other information to calculate the credit.
During enrollment in a qualified health plan, you may have had the option to receive an advance payment of this credit paid directly to the insurance company. If that was the case, you will need to adjust the amount of the credit by the amount of the advance payments. This information will be reported to you on the Form 1095-A so you will have the information you need to calculate the credit.
Once you have the Form 1095-A, you or your tax preparer can use the information to produce the Form 8962. Part 2 of this form is used to calculate any amount you will receive as a credit. This credit will then flow to line 69 of the Form 1040 and reduce the amount of the tax that you owe and potentially create a refund.
In some cases, you may have received more of an advanced payment than you are entitled to. This happens because the information you enter at the marketplace regarding income is an estimate so if that estimate is inaccurate, you may receive an overpayment. If you did receive too much advance payment, this will be calculated on part 3 of the Form 8962. The amount that you will need to pay back will then appear on the Form 1040 line 46 as an additional tax.
If you need assistance with this credit, TaxTicket can prepare the forms for you.