Your guide to the individual health insurance tax credit
In an aforementioned post, we went over a number of the fundamentals for understanding the connection between private health insurance and taxes. These key areas comprise of: essential paperwork (1095-A and 8962 forms), how the IRS verifies coverage, and the right way to file taxes when you didn’t have private health insurance for at any point in the year.
Health insurance tax credits have been briefly talked about, however they deserve their very own article right here.
If you’re acquainted with plans provided via the Health Insurance Marketplace, chances are you’ll be acquainted with the phrase Premium Tax Credit (additionally known as an Individual Health Insurance Tax Credit). If this tax year marks your first time figuring out your credit, no need to fret about it.
This piece will unpack the ABC’s, along with what it is, the way it’s earned, and circumstances that might have an effect on the quantity you obtain.
What the heck is the premium tax credit?
The Premium Tax Credit (hereafter known as “tax credit”) is a credit designed to help eligible people and households in paying their private health insurance premium for plans bought via their state’s Marketplace.
To oversimplify (and we’ll get further into it below), the tax credit helps individuals with low earnings and/or a bigger family to cover the price of their private health insurance. The quantity credited operates based on a sliding scale primarily based on these two elements.
Upon enrollment in a Marketplace plan, people can elect to have an estimated credit utilized upfront (advance premium tax credit), or select to obtain credit advantages at the year’s finality when finalizing their tax return. In both cases, Form 8962 will play an aspect (this will be addressed within the “How” part of the post later).
Who’s eligible for the premium tax credit?
As discussed above, tax credit eligibility is contingent on just a few elements. You will need to have enrolled in a private health insurance plan via your state’s Marketplace. You’ll be able to determine more about plans supplied by your state here (choose your state from the drop-down).
Secondly, your full household earnings should fall between 100-400% of the federal poverty plain based on household size.
This table chart, adapted from IRS.gov, outlines the Federal Poverty Line (FPL) because it applies to 2019 tax returns and a number of other common household sizes. For further ranges of completely different household sizes, HealthCare.gov has a wide range of numbers here.
There are two further elements for figuring out tax credit eligibility. If married, you will need to file your tax return with the standing as “Married”. People submitting “Married but Submitting Individually” are ineligible to secure a tax credit, except if an exemption is met.
Victims of domestic abuse or spousal abandonment should still qualify, and the schema chart on page 5 of Publication 974 will aid in verifying this eligibility.
Lastly, you can’t be claimed as a dependent by someone else submitting taxes and furthermore qualify as eligible.
How do I use my tax credit?
Once you first apply for private health insurance within the Marketplace, you’ll be able to find out if you qualify for a tax credit primarily based on your declared earnings and household size. Subsequently, you may elect to apply the estimated credit to your premium to decrease your month-to-month premiums. You may select to use all, some, or none of the estimated credit upon enrollment.
Utilizing the credit early is known as an “advanced payment of the premium tax credit” (APTC). Depending on the quantity you select to use, you will have to “reconcile” at the year’s end when submitting your taxes, and this can decide what amount is owed or refunded back to you.
Please note: in case your year-end earnings or household size is completely different than from the time when you first applied for insurance coverage, this impacts what you owe or are refunded when submitting taxes. This will be explained further in the post.
My income changes at some point during the year, what should I do then?
Should you a change in earnings occur or in your household size in a given year, it’s possible that your private health insurance tax credit will change also. For instance, say your earnings elevated or a member of your household is no longer with you. This may seemingly decrease your month-to-month premium tax credit.
Report the adjustments to your health insurance broker or your state’s Marketplace as quickly as humanly possible, so they might modify your credit accordingly. After all, the same goes for lowered revenue or an addition of a family member, in that your month-to-month premium tax credit will seemingly go up.
Say you didn’t report these changes to the Marketplace in actual time. At the end of. year once you have submitted taxes, you might have to pay the difference in credit attributed to your change in earnings or household size. Should you used lesser credit than you were given, you’ll obtain the difference as a part of your return.
How do I claim the credit on my tax return?
Should you elect to secure your credit in advance, and your end of year earnings determines a greater premium tax credit than you used, you’ll obtain the remaining credit along with your tax refund. In case your end of year earnings determines a reduced premium tax credit than earlier before, the remaining balance is paid once again in your tax return.
Say you selected to secure your credit at the end of the year upon submission. You’ll declare the eventual calculated amount which is able to either hike or decrease your tax refund. It’s worth noting that each situation is pretty comparable, the distinction is whether or not you selected to use the credit upfront or at year’s end.
Form 8962 will decide the amount of credit you’re eligible to secure. Refer again to our previous piece for utilizing this type of form for reconciliation.
Taxes can really feel overwhelming, however we hope this piece illustrates how reasonably uncomplicated it is to figure out credit eligibility. To briefly summarize, you figure out your estimated tax credit when applying for private health insurance via your state’s Marketplace. It is going to be primarily based upon your provided earnings and household size.
This tax credit quantity is adjustable at any time, relying on adjustments to your revenue and household size. Report these adjustments in real-time to your health insurance broker or your state’s Marketplace. When submitting taxes at year’s end, complete Form 8962 to reconcile your tax credit. That is, provide up to date earnings or household size data to find out the quantity available for refund.