You may have heard of a Premium Tax Credit, but most taxpayers don’t know what it is or how it works. This line of tax credit is refundable and designed to help low- or moderate-income earners afford health insurance. The insurance is offered through the Health Insurance Marketplace. The lower your income, the higher your credit coverage for the cost of your insurance. If the amount of credit is more than the amount of your tax liability, you will receive the difference as a refund.
You can access the full benefit of your Premium Tax Credit during tax season after you file your return. Other options for using the credit benefit include: estimated credit that is paid to your insurance company to lower what you pay monthly. Either way, Form 8962, must be completed with the PTC attached to your tax return.
Who is Eligible for Premium Tax Credit?
There are a number of requirements for Premium Tax Credit.
- Have a household income of at least 100%, but no more than 400%, of the federal poverty line for your family size.
- Do not file separately from your spouse, unless you qualify for a special exception due to domestic abuse and spousal abandonment.
- You cannot be claimed as a dependent
- In the same month, you or a family member:
- Enroll in coverage through Marketplace
- Are not able to get affordable coverage through an eligible employer-sponsored plan that provides minimum value
- Are not eligible through government programs, such as Medicaid, Medicare, CHIP or TRICARE
- Pay the share of the premiums not covered by advance credit payments.
What happens if your family size and income changes during the year?
The premium tax credit amount differs based on your family size and household income. Marriage, divorce, and other factors can make a significant difference in how Marketplace computes your credit amount.
Notifying the Marketplace about changes as soon as possible will allow the Marketplace to update the information used to calculate your expected credit amount. This can be useful if your household grows, or your income decreases, because Marketplace can adjust your advance payment amount and possibly provide more premium tax credit.
These are changes in circumstances that can affect the amount of your actual premium tax credit:
- Moving to another address
- Birth or adoption of a child
- Gaining or losing eligibility for sponsored health care coverage
- Other changes to your household composition
- Increases or decreases in your household income
- Debt forgiveness or cancellation
- Lump sum payments of Social Security benefits and Disability Insurance
- Lump sum taxable distributions from a retirement account or other retirement arrangements
How to get Advance Payments of the Premium Tax Credit
When you apply for Marketplace coverage, you will be asked if you prefer all, some, or none of your estimated credit paid in advance. You must opt for advance credit payments by filing Form 8962 with your income tax return. Should you fail to file Form 8962, you cannot claim the premium tax credit.
Advantages of Premium Tax Credit
For someone who might owe taxes after filing, the premium tax credit can lower the amount of taxes owed on that return, or increase your refund.