Contributed by: Henry, FreeTaxUSA Agent, Tax Pro
Many Americans who obtain health insurance through the federal or state exchanges may be eligible for a government subsidy known as the Premium Tax Credit (PTC). This subsidy is designed to assist with premium payments. If you qualify, you can choose to have all or part of your estimated credit paid in advance to your insurance company to reduce your monthly out-of-pocket premium costs. If you opt for the advance PTC, you’ll need to reconcile the amount received when you file your annual tax return.
Reconciling the PTC
When you applied for health insurance coverage, you made an estimate of your income and family size. If you qualified for the PTC, it was based on your estimate. If you had advance payments of the PTC paid to your health insurer, those were also based on your estimate.
At the end of the year, when you file your tax return, you report what your actual income and family size are. Then your final PTC is calculated based on your actual income and family size.
- If your income was less than anticipated, you may qualify for a larger PTC than what was initially offered. In that case, you can claim the difference as a credit on your tax return.
- If your income was more than anticipated, you may qualify for a lower PTC. If your final PTC is lower than your estimated PTC, you'll probably have to repay some or all of the advance payments with your tax return.
You’ll receive Form 1095-A, Health Insurance Marketplace Statement, by January 31 of the year following the year of coverage. The information on that form is used to complete Form 8962, Premium Tax Credit (PTC), where the PTC is reconciled. Form 8962 needs to be attached to your return.
Paying back the PTC
If your Advance PTC (APTC) is more than your final PTC on Form 8962, you have excess APTC and may need to repay some or all of the excess. Here’s an example of what that would look like on Form 8962.
How to avoid excess APTC
Report changes in your circumstances to the federal or state exchange as soon as they occur. If your household income goes up or the size of your household is smaller than what you initially reported, then the exchange can adjust your APTC payment amount accordingly. Doing this can help you avoid having to pay back excess APTC when it is time to file your tax return.
Here is a list of changes in circumstances from the IRS that can affect the amount of your PTC:
- Increases or decreases in your household income, including:
- Lump sum payments of Social Security benefits
- Lump sum taxable distributions from an individual retirement account
- Debt forgiveness or cancellation, such as the cancellation of credit card debt
- Marriage or divorce
- Birth or adoption of a child
- Other changes affecting the composition of your tax family which includes you, your spouse if filing jointly, and your dependents
- Gaining or losing eligibility for government sponsored or employer sponsored health care coverage
- Moving to a different address
If you’d like to see how changes in your circumstances may affect the amount of PTC you can claim, the IRS has an estimator tool available.
