Questions and Answers on the Premium Tax Credit
- The Basics: Questions 1-4
- Eligibility: Questions 5-15
- Computing the Amount: Questions 16-19
- Reporting, Claiming and Reconciling: 20-26
1. What is the premium tax credit?
The premium tax credit is a refundable tax credit designed to help eligible individuals and families with low or moderate income afford health insurance purchased through the Health Insurance Marketplace, also known as the Exchange, beginning in 2014. The size of your premium tax credit is based on a sliding scale. Those who have a lower income get a larger credit to help cover the cost of their insurance. When you enroll in Marketplace insurance, you can choose to have the Marketplace compute an estimated credit that is paid to your insurance company to lower what you pay for your monthly premiums (advance payments of the premium tax credit, or APTC). Or, you can choose to get all of the benefit of the credit when you file your tax return for the year. If you choose to have advance payments of the premium tax credit made on your behalf, you will reconcile the amount paid in advance with the actual credit you compute when you file your tax return. Either way, you will complete Form 8962, Premium Tax Credit (PTC) and attach it to your tax return for the year.
The credit is “refundable” because, if the amount of the credit is more than the amount of your tax liability, you will receive the difference as a refund. If you owe no tax, you can get the full amount of the credit as a refund. However, if advance credit payments were made to your insurance company and your actual allowable credit on your return is less than your advance credit payments, the difference, subject to certain repayment caps, will be subtracted from your refund or added to your balance due.
2. What is the Health Insurance Marketplace?
The Health Insurance Marketplace (Marketplace) is the place where you will find information about private health insurance options, purchase health insurance, and obtain help with premiums and out-of-pocket costs if you are eligible. The Department of Health and Human Services (HHS) administers the requirements for the Marketplace and the health plans offered. Generally, you purchase health insurance at the Marketplace during an open enrollment period. For example, the open enrollment period to purchase health insurance through a Marketplace for 2016 started on November 1, 2015, and ends on January 31, 2016. After an open enrollment period is over, individuals who experience certain life events may qualify for a special enrollment period to buy a health plan through a Marketplace. For details about who is eligible for a special enrollment period, for information about future open enrollment periods, and to learn more about the Marketplace, visit HealthCare.gov.
3. How do I get advance payments of the premium tax credit?
When you or a family member applies for Marketplace coverage, the Marketplace will estimate the amount of the premium tax credit that you may be able to claim for the tax year, using information you provide about your family composition, projected household income, and other factors, such as whether those that you are enrolling are eligible for other, non-Marketplace coverage. Based upon that estimate, you can decide if you want to have all, some, or none of your estimated credit paid in advance directly to your insurance company to lower your monthly premiums. If you choose to have advance credit payments made on your behalf, you will be required to file Form 8962 with your income return tax to reconcile the amount of advance payments with the premium tax credit that you may claim based on your actual household income and family size.
If you do not opt for advance credit payments or the Marketplace determines that you were not eligible for advance payments at the time of enrollment, you may be eligible to claim the credit on Form 8962 when you file your tax return for the year, which will either lower the amount of taxes owed on that return or increase your refund.
4. What happens if my income, family size or other circumstances changes during the year?
The actual premium tax credit for the year will differ from the advance credit amount estimated by the Marketplace if your family size or household income as estimated at the time of enrollment is different from the family size or household income you report on your return. The more your family size or household income differs from the Marketplace estimates used to compute your advance credit payments, the more significant the difference will be between your advance credit payments and your actual credit. Other changes in circumstances, such as marriage or divorce, may also affect your credit amount. If your actual allowable credit on your return is less than your advance credit payments, the difference, subject to certain repayment caps, will be subtracted from your refund or added to your balance due. If your actual allowable credit is more than your advance credit payments, the difference will be added to your refund or subtracted from your balance due.
Notifying the Marketplace about changes in circumstances as soon as they occur will allow the Marketplace to update the information used to determine your expected amount of the premium tax credit and adjust your advance payment amount. This adjustment will decrease the likelihood of a significant difference between your advance credit payments and your actual premium tax credit. Changes in circumstances that can affect the amount of your actual premium tax credit include:
- Increases or decreases in your household income, including lump sum payments like a lump sum payment of Social Security benefits or taxable distributions from an individual retirement account or other retirement arrangement
- Birth or adoption of a child
- Other changes to your household composition
- Gaining or losing eligibility for government sponsored or employer sponsored health care coverage
- Moving to another address
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5. Who is eligible for the premium tax credit?
You are eligible for the premium tax credit if you meet all of the following requirements:
- Have household income that falls within a certain range (see question 7).
- Do not file a Married Filing Separately tax return ((unless you qualify for a special rule that allows certain victims of domestic abuse and spousal abandonment to claim the premium tax credit using the Married Filing Separately filing status (see questions 9 and 10));
- Cannot be claimed as a dependent by another person; and
- In the same month, you, or a family member:
- Enroll in coverage (excluding “catastrophic” coverage) through a Marketplace
- Are not able to get affordable coverage through an eligible employer-sponsored plan that provides minimum value (see questions 11 and 12)
- Are not eligible for coverage through a government program, like Medicaid, Medicare, CHIP or TRICARE
- Pay the share of premiums not covered by advance credit payments
6. Who is a family member for purposes of the premium tax credit?
For purposes of the premium tax credit, your “family” is every individual for whom you claim a personal exemption deduction on your tax return (usually yourself, your spouse, and your dependents). Your “family size” is the number of individuals in your “family.”
7. What are the income limits?
In general, individuals and families may be eligible for the premium tax credit if their household income for the year is at least 100 percent but no more than 400 percent of the federal poverty line for their family size. For residents of one of the 48 contiguous states or Washington, D.C., the following illustrates when household income would be at least 100 percent but no more than 400 percent of the federal poverty line in computing your premium tax credit for 2015:
- $11,670 (100%) up to $46,680 (400%) for one individual
- $15,730 (100%) up to $62,920 (400%) for a family of two
- $23,850 (100%) up to $95,400 (400%) for a family of four
Note: The federal poverty guidelines — sometimes referred to as the “federal poverty line” or FPL — state an income amount considered poverty level for the year based on family size. The Department of Health and Human Services (HHS) determines the federal poverty guideline amounts annually. The government generally adjusts the income limits annually for inflation. The Federal Register publishes a chart reflecting these amounts at the beginning of each calendar year. You can also find this information on the HHS website. HHS provides three federal poverty guidelines: one for residents of the 48 contiguous states and D.C., one for Alaska residents and one for Hawaii residents. For purposes of the premium tax credit, eligibility for a certain year is based on the most recently published set of federal poverty guidelines on the first day of the annual open enrollment period. For example, the tax credit for 2015 is based on the 2014 FPL.
- 8. What is household income?
- For purposes of the premium tax credit, your household income is your modified adjusted gross income plus that of every other member of your family (see question 6) who is required to file a federal income tax return. Modified adjusted gross income is the adjusted gross income on your federal income tax return plus any excluded foreign income, nontaxable Social Security benefits (including tier 1 railroad retirement benefits), and tax-exempt interest received or accrued during the taxable year. It does not include Supplemental Security Income (SSI).
9. Am I definitely ineligible for the premium tax credit if I’m married but I file my tax return using the filing status married filing separately?
- No. If you are married and you file your tax return using the filing status married filing separately, you may be eligible for the premium tax credit if you meet the criteria in section 1.36B-2T(b)(2) of the Temporary Income Tax Regulations, which allows certain victims of domestic abuse and spousal abandonment to claim the premium tax credit using the married filing separately filing status. You can claim this relief from the joint filing requirement if you meet all of the following criteria:
- You are living apart from your spouse at the time you file your tax return.
- You are unable to file a joint return because you are a victim of domestic abuse or spousal abandonment (see question 13).
- You certify on your return that you are a victim of domestic abuse or spousal abandonment.
To certify that you are a victim of domestic abuse or spousal abandonment and qualify for relief from the joint return filing requirement, you should check the box at the top of Form 8962, Premium Tax Credit (PTC), which you will use to claim the credit. You should not attach documentation of the abuse or abandonment to your tax return, but should keep any documentation you may have with your tax return records. For examples of what documentation to keep, see Publication 974, Premium Tax Credit (PTC). Taxpayers may claim this relief from the joint filing requirement for no more than three consecutive years. For more information on this relief, see the instructions to Form 8962, Premium Tax Credit (PTC).
Note: Generally, a married taxpayer who lives apart from his or her spouse for the last six months of the taxable year is considered unmarried if he or she files a separate return, maintains as the taxpayer’s home a household that is also the main home of a dependent child for more than half the year, and furnishes over half the cost of the household during the taxable year.
10. For purposes of the relief from the joint filing requirement for certain victims of domestic abuse and spousal abandonment, how are domestic abuse and spousal abandonment defined?
Domestic abuse includes physical, psychological, sexual, or emotional abuse, including efforts to control, isolate, humiliate, and intimidate, or to undermine the victim’s ability to reason independently. All the facts and circumstances are considered in determining whether an individual is abused, including the effects of alcohol or drug abuse by the victim’s spouse. Depending on the facts and circumstances, abuse of the victim’s child or other family member living in the household may constitute abuse of the victim.
A taxpayer is a victim of spousal abandonment for a taxable year if, taking into account all facts and circumstances, the taxpayer is unable to locate his or her spouse after reasonable diligence.
11. How do I know if the insurance offered by my employer is affordable?
An employer-sponsored plan generally is affordable if the portion of the annual premium you must pay for self-only coverage that satisfies the minimum value requirement (see question 12) does not exceed 9.5 percent of your household income, but this percentage is adjusted annually. For plan years beginning in 2015, the percentage is 9.56 percent – see Revenue Procedure 2014-37, and for plan years beginning in 2016, the percentage is 9.66 percent – see Revenue Procedure 2014-62. (See question 8 for what is included in household income.) The affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. If the employer offers multiple health coverage options, the affordability test applies to the lowest-cost option available to you that also satisfies the minimum value requirement. If your employer offers any wellness programs (including programs based on a health factor or requiring that the wellness incentive be earned), the affordability test is based on the premium you would pay if you received the maximum discount for any tobacco cessation programs, and did not receive any other discounts based on wellness programs.
If your employer offers affordable self-only coverage, generally you are not eligible for the premium tax credit. However, the regulations under Internal Revenue Code section 36B provide an employee safe harbor for certain affordability determinations made by the Marketplace. Under the employee safe harbor, employer-sponsored coverage is treated as unaffordable for you if (1) you provided accurate information to the Marketplace about the cost of employer-sponsored coverage and (2) the Marketplace determined that you were eligible for advance payments of the premium tax credit (APTC) because employer-sponsored coverage was unaffordable based on your projected household income. Under these circumstances, you would still be eligible for the premium tax credit if you meet the other eligibility criteria even though the employer-sponsored coverage would have been affordable based on the your actual household income. The employee safe harbor does not apply to you if, with reckless disregard for the facts, you provided incorrect information to a Marketplace concerning the portion of the annual premium for self-only coverage for the employee under the plan.
12. How do I know if the insurance offered by my employer provides minimum value?
An employer-sponsored plan provides minimum value if the plan covers at least 60 percent of the expected total allowed costs for covered services. The plan also must provide substantial coverage of in-patient hospitalization and physician services. Beginning in 2014, your employer is required to provide you with a document called a Summary of Benefits and Coverage. That document will give you information about the benefits and coverage under your employer-sponsored plan, including whether the plan provides minimum value. Also, under the Fair Labor Standards Act, most employers will provide employees with a one-time notice about their options in the Marketplace and their potential eligibility for a premium tax credit. This one-time notice will include information about whether the employer has a plan that provides minimum value.
13. Am I eligible for the premium tax credit if I enroll in coverage through an employer and also enroll in coverage through the Marketplace?
If you enroll in an employer-sponsored plan, including retiree coverage, you are not eligible for the premium tax credit for your Marketplace coverage, even if the employer plan is unaffordable or fails to provide minimum value. You may be eligible for a premium tax credit for coverage of another member of your family who enrolls in Marketplace coverage and is not enrolled in the employer plan
14. Can I get the premium tax credit subsidy for coverage through a Marketplace if I am eligible for coverage through my former employer, such as COBRA or retiree coverage?
If your is coverage is from a former employer, such as COBRA or retiree coverage, you can decline the employer coverage, even if it is affordable and provides minimum value, and may be eligible for the premium tax credit for Marketplace coverage.
15. What if the retiree coverage consists of a retiree-only health reimbursement arrangement (HRA)?
If you enroll in an HRA, you cannot claim a premium tax credit for the months you are enrolled in the HRA.
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16. How is the amount of the premium tax credit computed?
The amount of the premium tax credit is generally equal to the premium for the second lowest cost silver plan available through the Marketplace that applies to the members of your family who are enrolled in coverage through the Marketplace and not eligible for other, non-Marketplace coverage such as government coverage or affordable employer-sponsored coverage, minus a certain percentage of your household income. However, the credit cannot be more than the premiums for the Marketplace plan or plans you or your family enrolls in (your enrollment premiums).
17. What is the second lowest cost silver plan if only one silver plan is available where I reside, or the premiums for the two lowest cost silver plans are exactly the same?
If there is only one silver plan, that plan is treated as the second lowest cost silver plan. If the two lowest cost silver plans have identical premiums, that premium is the premium for the second lowest cost silver plan.
18. I am a smoker. Is the amount of my premium tax credit based on the higher premiums for smokers?
Higher premiums for smokers are not counted in determining the amount of the second lowest cost silver plan that applies to your family. Therefore, if the monthly premium for the applicable second lowest cost silver plan is $1,200 for smokers and $900 for non-smokers, the $900 non-smoker premium is the second lowest cost silver plan premium used to compute your credit. However, the amount of your enrollment premiums, which might limit the amount of your premium tax credit, are the amount you are actually being charged. For example, if your monthly enrollment premiums are $650 because you are a tobacco user but would be $500 if you did not use tobacco, the monthly enrollment premiums you use in computing your premium tax credit are $650.
19. Is my coverage eligible for the premium tax credit if I enroll in the middle of the month?
- To be eligible for a credit amount for a particular month, you generally must be enrolled in a qualified health plan through the Marketplace on the first day of that month. However, if an individual enrolls in a qualified health plan and the enrollment is effective on the date of the individual’s birth, adoption, or placement for adoption or in foster care, or on the effective date of a court order, the individual is treated as enrolled as of the first day of that month.
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20. Will I have to file a federal income tax return to get the premium tax credit?
- Yes. For any tax year, if you have APTC in any amount or you do not have APTC but you plan to claim the premium tax credit, you must file a Form 8962, and attach it to your federal income tax return for that year. If you have any APTC, you will use Form 8962 to reconcile the difference between the APTC made on your behalf and the actual amount of the credit that you may claim on your return. This filing requirement applies whether or not you would otherwise be required to file a return.
- If APTC is made on behalf of you or an individual in your family, and you do not file a tax return, you will not be eligible for APTC or cost-sharing reductions to help pay for your Marketplace health insurance coverage in future years. This means that you will be responsible for the full cost of your monthly premiums.
- 21. If I get insurance through the Marketplace, how will I know if need to file a federal tax return and what to report on my return?
If you purchased coverage through the Marketplace you should receive Form 1095-A, Health Insurance Marketplace Statement, from your Marketplace by early February. If this form shows you APTC was paid on behalf of a member of your family, you are required to complete Form 8962, Premium Tax Credit (PTC), to reconcile those advance payments. Form 1095-A provides information you will need when completing Form 8962. If you have questions about the information on Form 1095-A, or about receiving Form 1095-A, you should contact your Marketplace directly. The IRS will not be able to answers questions about the information on your Form 1095-A or about missing or lost forms.
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.
- 22. How do I reconcile APTC with the actual premium tax credit on my return?
- When you complete your tax return, you will figure your credit and compare it to the amount of APTC on Form 8962. If your actual allowable credit on your return is less than your APTC , the difference, subject to certain repayment caps, will be subtracted from your refund or added to your balance due. If your actual allowable credit is more than your APTC , the difference will be added to your refund or subtracted from your balance due. (See question 4 for information on changes in circumstances.
23. What are the repayment caps?
The repayment caps limit how much of the excess APTC you must repay and are based on your household income and filing status. If your household income reported on your tax return is 400 percent of the FPL (which is based on household income and family size) or higher, you must repay the full amount of APTC that exceeds your premium tax credit. See Publication 974 for more information on the repayment caps.
- 24. If I am not allowed a premium tax credit because I file my tax return using the married filing separately filing status (and I do not qualify for the relief described in questions 9 and 10), do I include my spouse in my family size when determining if there is a cap on the amount I must repay?
- If you use the married filing separately filing status, your family size includes your spouse only if you claim a personal exemption deduction for your spouse. Otherwise, your family size does not include your spouse.
- 25. What happens if I have a balance due from an excess advance payment of the premium tax credit, but I cannot afford to make the payment when filing my tax return?
- The vast majority of individuals who need to repay excess advance payments will satisfy that balance through a reduction in their expected income tax refund. However, if you owe a balance in excess of your refund, you should be aware that the IRS routinely works with taxpayers who owe amounts they cannot afford to pay. The ability to make a payment arrangement for these underpayments is identical to the provisions for other tax balances. See Publication 4849, Can’t Pay the Tax You Owe? for further information on how to pay your past due federal income tax liability.
- 26. I enrolled in a qualified health plan with APTC based on a Marketplace determination or assessment that I was ineligible for Medicaid or CHIP coverage. Subsequently, I was determined eligible for Medicaid and was enrolled for several months while I was enrolled in the qualified health plan. Am I treated as eligible for Medicaid and therefore ineligible for the premium tax credit for these months?
- Generally, no. If a Marketplace makes a determination or assessment that an individual is ineligible for Medicaid or CHIP and eligible for APTC when the individual enrolls in a qualified health plan, the individual is treated as not eligible for Medicaid or CHIP for purposes of the premium tax credit for the duration of the period of coverage under the qualified health plan (generally, the rest of the plan year). Accordingly, if you were enrolled in both Medicaid coverage and in a qualified health plan for which advance credit payments were made for one or more months of the year following a Marketplace determination or assessment that you were ineligible for Medicaid, you can claim the premium tax credit for these months, if you are otherwise eligible. The Marketplace may periodically check state Medicaid data to identify consumers who may be dual-enrolled, and direct them to return to the Marketplace to discontinue their APTC. If you believe that you may currently be enrolled in both Medicaid and a qualified health plan with advance credit payments, you should contact the Marketplace immediately.