What is a premium tax credit (PTC)?
The Premium tax credit, a federally-funded initiative, reduces your insurance premiums if you buy coverage via the Health Insurance Marketplace. The program is open to all families and individuals earning below the federally defined poverty level, as long as they meet certain eligibility criteria.
How does it work?
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. The credit is sent directly from the government to your insurance provider, lowering monthly premiums.
If you are eligible for a premium tax credit, your insurer will send you a "Health Insurance Marketplace Statement" called a 1095-A when it issues your policy. The form will also report the amount of the premium tax credit you are entitled to.
Your premium tax credit is based on your estimated household income and the size of your tax family (yourself, your spouse if filing a joint return, and your dependents). If your income changes during the year, or if your tax family size changes, then your premium tax credit will change.
What happens if your income is higher than expected?
You may be required to repay part or even all of the premium tax credit if your income increases during the course of the year. The maximum you can pay is 400% of your household income. It is sometimes referred to by the term "clawback."
How do you handle a change in your income?
Marketplace needs to be informed of any changes as soon 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. Instructions for Form 8962 are available. This form is used to submit information about claiming a credit against the cost of health insurance purchased through the Health Insurance Marketplace.
What is Form No. 8962
When you file an income tax return you will need to declare the amount that you received for your premium tax advance during 2021. 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.
You can reconcile your advance premium tax credits received for 2021 using Form 8962. You'll find this form on your state's website or at the IRS website.
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.
There are a few exceptions. Your household income must be above 138% poverty level in a non-ACA state or you may have received unemployment compensation in whichever week of 2021. However, these exceptions only apply to income that was reported on your taxes for 2021.