Contributed by: Henry, FreeTaxUSA Agent, Tax Pro
The Health Insurance Marketplace allows parents to include a non-dependent child under age 26 in their household. This means the child can be added to the parent’s policy even if they aren’t claimed as a dependent on the tax return. In this situation, Form 1095-A must be reported on both the parent’s and the child’s tax returns, with premiums allocated between them. Here’s how to do that.
Form 1095-A
If you had health insurance from the Marketplace or a state-based exchange, you’ll typically receive Form 1095-A from your provider. This form reports the total enrollment premiums, the applicable Second Lowest Cost Silver Plan (SLCSP) premium, and the advance premium tax credit (APTC) for your coverage. You’ll need this information to complete Form 8962 when filing your tax return.
When a non-dependent child is included on a parent’s policy, Form 1095-A may only be furnished to the parent. If this happens, the parent should provide a copy to their child so the policy information can be reported on both returns.
Reporting an allocation on your return
To enter your Form 1095-A information in FreeTaxUSA, follow this menu path: Deductions/Credits > Health Insurance > Marketplace Health Insurance (Form 1095-A).
Answer “Yes” when asked if you need to allocate your premiums between two different tax returns:
Allocating policy amounts
When reporting Form 1095-A information on your return, the allocation rule you use depends on whether APTC was paid for the policy.
1. If no APTC was paid:
The premiums are allocated in proportion to the SLCSP premium that applies to each taxpayer’s coverage family. The parent and non-dependent child should each determine their correct applicable SLCSP premium. They will then calculate their individual premium tax credit using their household income and family size, and the applicable SLCSP premium for their coverage family.
Example 1: Tessa enrolls in a health plan through the Marketplace. The policy covers Tessa, her two young daughters who are her dependents, and her 25-year-old non-dependent son, Bobby. No APTC is paid for this policy. Tessa receives Form 1095-A from the Marketplace showing an enrollment premium of $12,000 for the year. The form also shows an SLCSP premium that applies to a coverage family which incorrectly includes all four individuals -- Tessa, her daughters, and Bobby.
Tessa and Bobby use the Marketplace tool to determine the SLCSP premium that applies to Tessa’s coverage family of three ($10,000) and the SLCSP premium that applies to Bobby’s coverage family of one ($5,000).
Tessa calculates her premium tax credit using her household income and family size of three, and the applicable SLCSP premium for a coverage family of three ($10,000). Bobby calculates his credit using his income and family size of one, and the applicable SLCSP premium for a coverage family of one ($5,000).
To correctly fill out Form 8962, Tessa and Bobby must allocate the enrollment premiums of $12,000 from Form 1095-A in proportion to each taxpayer's applicable SLCSP premium as follows:
- Tessa
- $10,000 / $15,000 = 67% (Tessa’s portion of the total SLCSP premiums)
- $12,000 enrollment premiums * 67% = $8,040 Tessa’s allocated enrollment premiums
Tessa can enter her premium allocation percentage (67%) and her SLCSP amount ($10,000) in FreeTaxUSA as shown below for the allocated enrollment premiums and the premium tax credit to be calculated by the software. The appropriate amounts will then be included on her Form 8962.
- Bobby
- $5,000 / $15,000 = 33% (Bobby's portion of the total SLCSP premiums)
- $12,000 enrollment premiums * 33% = $3,960 Bobby’s allocated enrollment premiums
Bobby can enter his premium allocation percentage (33%) and his SLCSP amount ($5,000) in FreeTaxUSA as shown below for the allocated enrollment premiums and the premium tax credit to be calculated by the software. The appropriate amounts will then be included on his Form 8962.
2. If APTC was paid:
You’ll generally use the total enrollment premiums, applicable SLCSP premium, and APTC shown on Form 1095-A, and you can choose the allocation percentages that best suit your situation. The IRS says you and the other taxpayer may agree on any allocation of the policy amounts between the two of you, as long as they combine to be 100%. However, you must allocate all three items (total enrollment premiums, applicable SLCSP premium, and APTC) using the same percentage, as depicted below.
If you don’t agree on a percentage, each taxpayer’s allocation percentage is equal to the number of individuals enrolled by one taxpayer who are included in the tax family of the other taxpayer divided by the total number of individuals enrolled in the same policy as the individuals.
Example 2: The facts are the same as in Example 1, except that $3,000 APTC is paid for this policy. Bobby helped to pay half of the premiums for the policy. Tessa and Bobby choose to allocate 50% of the policy amounts to Tessa and 50% to Bobby.
Example 3: The facts are the same as in Example 2, except Tessa and Bobby can’t agree on an allocation percentage. Bobby’s allocation percentage equals the number of individuals Tessa enrolled in the health plan who are included in Bobby’s tax family (1—Bobby), divided by the number of individuals enrolled in the plan (4—Tessa, Bobby, and Tessa’s two dependent daughters). Thus, 1/4 or 25% of the policy amounts are allocated to Bobby’s coverage, and Tessa’s allocation is the remaining 75%.
Example 4: The facts are the same as in Example 2, except Bobby didn’t pay any of the premiums for the policy. Tessa and Bobby choose to allocate 100% of the policy amounts to Tessa and 0% to Bobby.
Conclusion
Allocating policy amounts between a parent and a non-dependent child doesn’t have to be stressful. Determine if APTC was paid and then follow the IRS rule that fits your specific circumstances. For more details and examples, refer to IRS Publication 974 or the Form 8962 instructions.
