The Premium Tax Credit
This year, there are some changes to tax forms related to the Affordable Care Act. For the first time, you will report health care coverage on your tax return. Most taxpayers will simply check a box to indicate that each member of their family had qualifying health coverage for the whole year. And for taxpayers who received advance payments of the premium tax credit or are claiming the premium tax credit, there is also a new form they will have to complete. More details about claiming the premium tax credit or reconciling the advance payments of the premium tax credit can be found in Publication 974, Premium Tax Credit.
To help navigate these changes, taxpayers and their tax professionals should consider filing their return electronically. Using tax preparation software is the best and simplest way to file a complete and accurate tax return as it guides individuals and tax preparers through the process and does all the math. There are a variety of electronic filing options, including free volunteer assistance, IRS Free File for taxpayers who qualify, commercial software, and professional assistance.
Information on the decision of the Supreme Court of the United States in King v. Burwell regarding Premium Tax Credits under the Affordable Care Act
The Supreme Court decision on June 25 upheld the availability of premium tax credits under the Affordable Care Act in every state. In other words, nothing has changed and tax credits remain available. Individuals do not need to take any action or make any changes in response to the announcement by the Supreme Court. If you have any additional questions, please visit HealthCare.gov.
If you get your health insurance coverage through the Health Insurance Marketplace, you may be eligible for the premium tax credit. This tax credit can help make purchasing health insurance coverage more affordable for people with moderate incomes. Each year the Health Insurance Marketplace has an open enrollment period. The open enrollment period to purchase health care insurance for 2015 closed on Feb. 15, 2015. However, the federally-facilitated Marketplace has announced special enrollment period from March 15 through April 30, 2015.
The special enrollment period is for individuals and families in states that use the federally-facilitated Marketplace who did not have health coverage in 2014 and are subject to the shared responsibility payment when they file their 2014 taxes. Additional criteria apply. This special enrollment period will allow individuals and families who were unaware of or didn’t understand the implications of this new requirement to enroll in health insurance coverage through the FFM. Full details about the special enrollment period are on the HealthCare.gov website.Some state-based marketplaces have established similar special enrollment period; contact your state’s marketplace for more information.
The Department of Health and Human Services administers the requirements for the Marketplace and the health plans they offer. For more information about your coverage options, financial assistance and the Marketplace, visit HealthCare.gov.
In general, you may be eligible for the credit if you meet all of the following:
- buy health insurance through the Marketplace;
- are ineligible for coverage through an employer or government plan;
- are within certain income limits;
- do not file a Married Filing Separately tax return (unless you meet criteria which allows certain victims of domestic abuse and spousal abandonment to claim the premium tax credit using the Married Filing Separately filing status); and
- cannot be claimed as a dependent by another person.
Publication 974, Premium Tax Credit provides additional instructions for taxpayers who are filing a separate return from their spouse because of domestic abuse or abandonment.
If during enrollment, you are eligible for the credit, you can choose to:
- Get It Now: have some or all of the estimated credit paid in advance directly to your insurance company to lower what you pay out-of-pocket for your monthly premiums; or
- Get It Later: wait to get all of the credit when you file your tax return.
During enrollment the Marketplace will use information you provide about your projected income and family composition for the year to estimate the amount of the premium tax credit you will be able to claim on your tax return.
You will then decide whether you want to have all, some or none of your estimated credit paid in advance directly to your insurance company.
Claiming the Credit on Your Federal Tax Return
If you chose to have advance credit payments sent to your insurer, you must file a federal income tax return, even if otherwise not required to file. You must complete Form 8962, Premium Tax Credit (PTC) to claim the premium tax credit and reconcile your advance credit payments with the premium tax credit you are eligible to claim on your return. If the amount is less than the actual premium tax credit, you will get the difference as a higher refund or lower tax due. If the advance credit payments that were paid to your health care provider were more than the actual credit, you may need to pay the difference with your tax return. The completed Form 8962 must be filed with your federal income tax return.
If you enrolled in coverage through the Marketplace but didn’t get the benefit of advance credit payments during 2014, if eligible, you may claim the premium tax credit when you file your return. You can complete Form 8962 to find out if you are eligible for the credit. You can also use our interactive tool, Am I eligible to claim the Premium Tax Credit?, to find out if you are eligible.
If you purchased coverage through the Health Insurance Marketplace you will receive Form 1095-A, Health Insurance Marketplace Statement from your Marketplace. This form provides information you will need when completing Form 8962. If you have questions about the information on Form 1095-A for 2014, or about receiving Form 1095-A for 2014, you should contact your Marketplace directly. If you have questions about how a Form 1095-A with incorrect information affects your taxes, see our Incorrect Forms 1095-A and the Premium Tax Credit questions and answers.
Filing electronically is the easiest way to file a complete and accurate tax return. Electronic Filing options include free Volunteer Assistance, IRS Free File, commercial software and professional assistance.
Penalty Relief Related to Repayment of Excess Advance Payments of the Premium Tax Credit for 2014
Starting with 2014 tax returns, just like taxpayers reconcile their tax withholding with their actual tax liability and get refunds or make an additional payment accordingly, individuals benefiting from tax credits for Marketplace coverage will follow the same process. Normally, taxpayers may owe certain penalties for late payments or underpayment of estimated tax. However, to help smooth the process for the first year of the Affordable Care Act, the IRS will waive these penalties (Notice 2015-09 ), for eligible taxpayers if they resulted from repayment of excess advance payments of the premium tax credit for Marketplace coverage. This has no effect on the fee individuals will pay if they chose not to buy affordable health coverage. Penalties do not apply to underpayment of this shared responsibility payment, although interest will accrue for late payments. IRS will continue to assess the fee without change.
Taxpayers will need to take the following simple actions to qualify for penalty relief related to repayment of excess advance payments of the premium tax credit:
- Failure to Pay: Taxpayers who are subject to a “failure to pay” penalty will receive a notice and demand for payment in the mail that will include an address for responses. Taxpayers should submit a letter to this address that contains the statement: “I am eligible for the relief granted under Notice 2015-09 because I received excess advance payment of the premium tax credit.”
- Penalty for Underpayment of Estimated Taxes: Taxpayers should check box A in Part II of Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, complete page 1 of the form, and include the form with their return, along with the statement: “Received excess advance payment of the premium tax credit.” No further action is required.
Publication 974, Premium Tax Credit has more information for taxpayers who must repay excess advance payments of the premium tax credit and want to determine their eligibility for penalty relief.
This relief does not extend the April 15, 2015 due date. However, to obtain an extension individuals can file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, on or before April 15, 2015. An extension of time to file a tax return does not extend the time to pay taxes—even if a taxpayer is granted an extension to file their return, their tax payment is still due by April 15, 2015.
Change in Circumstances
Report income and family size changes to the Marketplace throughout the year. Reporting changes will help make sure you get the proper type and amount of financial assistance and will help you avoid getting too much or too little in advance. Receiving too much or too little in advance can affect your refund or balance due when you file your tax return.
For example, if you do not report income or family size changes to the Marketplace when they happen, the advance payments may not match your actual qualified credit amount on your federal tax return. This might result in a smaller refund or a balance due.
View the following Individual Tax Provisions - Webinar (Mar 6, 2015) for information about claiming and reconciling advance payments of the Premium Tax Credit for taxpayers who purchased 2014 health coverage through the Health Insurance Marketplace. The webinar also includes an overview of the Individual Shared Responsibility Provision including reporting coverage, claiming coverage exemptions and making a shared responsibility payment.
More detailed information about the credit is available in our Questions and Answers.
The Department of the Treasury and the IRS issued the following legal guidance related to the premium tax credit:
- Publication 974, Premium Tax Credit English
- Publication 5120: Your Credit, Your Choice – Get it Now or Get it Later English | Spanish
- Publication 5121: Need help paying for health insurance premiums? English | Spanish
- Publication 5152: Report changes to the Marketplace as they happen English | Spanish
- Form 8962 Instructions
- Final regulations on the rules for individuals who enroll in qualified health plans through Marketplaces and claim the premium tax credit.
- Final regulations on the premium tax credit affordability test for related individuals.
- Proposed regulations on determining minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit.
- Notice 2013-41 on determining whether or when individuals are considered eligible for coverage under certain Medicaid, Medicare, CHIP, TRICARE, student health or state high risk pool programs.