While a tax credit that you can receive throughout the year as opposed to when you file your taxes annually may sound like a hoax or too good to be true, the Premium Tax Credit is just that!
What is the Premium Tax Credit?
A refundable tax credit you may qualify for if you purchase health insurance through the federal or state marketplace. The purpose of this credit was to make insurance more affordable for lower- and middle-income US residents who do not receive insurance through their employer and whose income excludes them to qualify for Medicaid. This credit can be applied throughout the year to reduce your monthly insurance premiums.
Who Qualifies?
Individuals whose income is at least 100% of the federal poverty level and not more than 400% (This federal poverty level does update annually). If married, not filing Married Filing Separately (Exceptions could apply for victims of domestic abuse or spousal abandonment). Cannot be claimed as a dependent by another person. Enrolled through Marketplace insurance for at least one month of a calendar year. Not eligible through an employer-sponsored health program or covered through a government program such as Medicaid, Medicare, CHIP or Tricare.
How do you Apply?
In most states, the federal government runs the Marketplace at HealthCare.gov. Some states do run their own health insurance marketplaces that would maintain their own website to apply for the insurance. Please check with your state.
How do you file for the credit on your taxes?
Your health insurance provider will issue a 1095-A that is used to complete Form 8962, Premium Tax Credit, on your personal tax return. If your income was higher than anticipated when applying for insurance, you WILL have to PAY some of the advanced Premium Tax Credit back. Likewise, if your income was lower than anticipated you WILL BE DUE additional Premium Tax Credit with your annual tax return filing.
Important Considerations:
Be as accurate as possible with income estimates — if your estimated income fluctuates substantially from what you grossed, you would owe more with your tax filing or be due additional credit. If any circumstances with income or family size change throughout the year, they need to be reported through Marketplace as they happen. Self-employment income is included in the PTC calculation — if you own a business and have Marketplace insurance, tax planning may be highly beneficial to reduce owing any additional tax at year end.