I often hear concerns from clients about the Premium Tax Credit (PTC) and what the ramification will be if they make too much income for the year. And indeed, there can be significant tax implications depending on your annual income!
First, a little background…
The Premium Tax Credit (PTC) is a provision of the Affordable Care Act (“Obamacare”) which allows for federal subsidies to individuals and families that have purchased health insurance through the Health Insurance Marketplace (the Marketplace). These subsidies take the form of Advanced Premium Tax Credits (APTC) that are paid to your insurance provider along with a refundable credit that may be available to you when filing your annual tax return.
A refundable credit reduces tax liabilities, dollar-for-dollar, and may result in a cash payment that is directly paid by the Federal Government to you! This contrasts with a “regular” credit which is only a direct reduction in taxes due.
When enrolling, the Marketplace will determine if you are eligible for the advanced payments which essentially results in discounted health insurance. Part of this enrollment process involves estimating your expected income for the current year. Unfortunately, as you well can appreciate, predicting the future is a tough business. So, at year end, a reconciliation between estimated income and actual income must be performed which will determine if you received too much or too little health insurance credits.
This is the point where your CPA becomes involved.
Form 8962 is filed along with your annual tax return and is the tool used by the Federal Government to perform this reconciliation between expected income, actual income, and health insurance subsidies that should have been received. Besides form 8962, which your CPA will handle, the other half of the reconciliation involves form 1095-A which will be provided to you by the Marketplace. This form shows the months of health insurance coverage purchased through the Marketplace along with any Advanced Premium Tax Payment (APTC) paid to your insurance company. The CPA will then compare the amount of APTC actually paid to what should have been paid based on your final income.
Long story short, if you earned more income than you expected and indicated at enrollment, you may have to pay back some or ALL the APTC. Conversely, if you earned less than expected, you will get a bigger return in the form of a Premium Tax Credit. Chances are that you will most likely face one of these two outcomes unless you are one of the few that manages to accurately predict your annual income.
While this may all seem straight forward, nothing is ever so simple with the IRS and there are many rules, exceptions, and caveats that exist in connection with the Premium Tax Credit…
Understandably, it is easy to get overwhelmed!
As we are approaching the due date for automatic extension of filing your individual tax return (Yep. It’s due October 15th), AWICPA will gladly help you file your annual tax return and get a plan together for next year’s return.
Call today, before all our appointment schedule becomes full, and make an appointment to get your tax return prepared.