What is premium tax credit?
The Premium Tax Credit is a federally-funded program that lowers insurance premiums for those who purchase their coverage through the Health Insurance Marketplace. The credit is available to individuals and families with incomes that are below the federal poverty line who also meet other criteria.
How does it work exactly?
When you apply for health insurance through the Marketplace, you estimate your family's income so that your insurer can determine the amount of the premium tax credit you'll receive. This credit will be sent directly to your insurer, which will lower your monthly premiums.
If you're eligible for a credit on premiums, your insurance company will send you an "Health Insurance Marketplace Statement", or 1095A, when they issue your policy. The form also provides the IRS with the amount of premium tax credits you have received.
Your credit for premium taxes is determined by your estimated household's income, the number of people in your taxfamily (you and your spouse, or both, if you file a joint return), as well as your dependents. Your premium tax credit may change if you have a change in income or your tax family changes.
What happens if the income you receive is more than you had expected?
You may have to return part or all your premium tax credits if you increase your income during the year. The maximum you can pay is 400% of your household income. This is known as the "clawback."
What happens when your income changes?
You should report any changes in your income to the Marketplace as soon as possible. You will avoid having to pay back any excess premium tax credits at the end.
The amount you must repay will depend on your income level and whether your income exceeds the poverty threshold. The rules are outlined in the instructions for Form 8962, which is used to report information related to claiming an offset to the cost of purchasing health insurance through the Health Insurance Marketplace.
What is the Form 8962?
The amount of the advance premium credit you received in 2021 will be reported on your tax return. The amount of money you'll have to repay will be determined by the result of the reconciliation between the advance premium credit you received in 2021 and your actual premium credit.
Reconciliation of the advance premium tax credit you received during 2021 is done on Form 8962. This form can be located on the IRS' website or your state's.
You'll also need to report the results of the reconciliation of the advance premium credit you received during 2021 to the IRS. This will be shown on your 2021 federal tax return, on Part III, line 29.
Some exceptions exist to this rule. If your household income is greater than 138% the poverty line in states which have not implemented Medicaid expansion as part of the ACA, or if the week you receive unemployment compensation begins in 2021. However, these exceptions only apply to income that was reported on your taxes for 2021.