What is Premium Tax Credit?
The Premium Tax credit is a federally funded initiative that helps reduce the cost of premiums for insurance purchased 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 function?
You estimate the income of your family when you apply for insurance via the Marketplace so that your insurer knows how much tax credit to give you. The credit is sent directly from the government to your insurance provider, lowering 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 will report your tax credit to IRS.
Your premium credit is based off your estimated household revenue and the size your tax family. (You, your spouse or dependents if you filed jointly with your spouse) If you change your income during the year or if the size of your family changes, your premium credit will also change.
What happens if your income is higher than expected?
Your premium tax credit may need to be repaid if your household income rises during the year. The maximum amount that you can pay back is capped at 400 percent of your household's income. This is known as the "clawback."
How does it function when your income fluctuates?
Report any changes to your income as soon as you can. This will save you money at the end the year when you have to pay back the excess premium tax credit.
The amount that you will have to repay depends on whether your income is over the poverty line or not. The rules can be found in the instructions to Form 8962. This is the form used to report the information related to claiming a cost offset for purchasing health insurance via the Health Insurance Marketplace.
What is the Form 8962?
When you file your tax return, you'll need to report the amount of your advance premium tax credit that you received during 2021. The amount you have to pay back will depend on the results of the reconciliation of the advance premium tax credit that you received during 2021 with your actual premium credit for that year.
On Form 8962, you reconcile the advance tax credit received in 2021. This form is available on the IRS or state websites.
The IRS will also require that you report the results of your reconciliation of the advanced premium credit that you received in 2021. This will appear in your 2021 federal 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. These exceptions, however, only apply to income you reported for your taxes in 2021.