What Is a Premium Tax Credit?

A premium tax credit, or PTC, is a type of refundable tax credit that allows low income and middle income individuals and families cover the premiums of health insurance bought in the Health Insurance Marketplace. The Health Insurance Marketplace is an online exchange in which individuals and families can find a health insurance plan in their budget.

The size of your premium tax credit depends on your level of income, so the lower your income, the higher the tax credit you’ll receive to cover your premiums. When you participate in health insurance from the Marketplace, you can get an estimate of the credit that will be sent to your insurance, reducing the amount of the premium you pay out-of-pocket. This is known as the advanced payments of the premium tax credit, or APTC. You can also wait until you file your taxes and receive all of your credit at one time. Should you choose to make advanced payments of the premium tax credit made to insurance, you will resolve the amount with the actual credit you receive when you file your tax return. Whichever option you choose, you must file Form 8962, Premium Tax Credit along with your tax return.

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Why Is the Credit Refundable?

The premium tax credit is considered a refund because you receive the difference between your credit and your tax liability when you file your taxes. If what you paid in credit is more than what you owed at the end of the year, you receive that money back. If at the end of the year you don’t owe taxes to the IRS, you can receive the full amount of credit once you file your taxes. Any advance payments you made through the premium tax credit is deducted from the final amount you can receive in your refund.

 

What Is the Health Insurance Marketplace?

When you want affordable insurance, you can turn to the Health Insurance Marketplace for a reasonable insurance plan that fits your budget. The Department of Health and Human Resources regulates the Marketplace and includes up-to-date information on its health insurance. This is an online resource where you can find information on different types of health insurance plans, and learn more about premiums versus out-of-pocket costs you can expect from each plan.

To enroll for insurance through the Marketplace, you typically need to apply during the open enrollment period, which generally lasts between November 1 and January 31. Under special circumstances, you may be able to apply through a special enrollment period to gain health insurance.

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Do I Qualify for a Premium Tax Credit?

If you get health insurance through the Marketplace, you may qualify for a premium tax credit. While you shop for health insurance, the Marketplace will provide an estimate on the premium tax credit amount you can expect based on your current income, which must be between 100 to 400 percent of the federal poverty line per individual and family size. The premium tax credit is based on a sliding scale, so the lower your income, the larger your premium tax credit. You can only receive a premium tax credit if you have insurance through the online Marketplace. If you are self-insured or you get insurance through an employer, you are ineligible for a premium tax credit.

Can I Get Advanced Payments of the Premium Tax Credit?

Yes! When the Marketplace makes an estimate of your premium tax credit, they make their decision based on the information you provide about your current circumstances. They’ll analyze factors like your projected income and family situation. Once you receive your estimate, you can decide how much of your premium tax credit you want to send directly to your insurance company to cover your monthly premium. Should you choose to take some or all of your premium tax credit out at once, you may be able to attain credit when you file Form 8962. This can increase your refund or lessen the amount of taxes you owe when you file.

 

What Happens If My Life Circumstances Change Within the Year?

When your income, marital status, or amount of dependents changes within the year, your actual premium tax credit will differ from the initial estimate made by the Marketplace. The more your income or household changes within the year, the greater the difference will be between the advance credit estimate and your actual available credit. If your advance tax credit is more than your balance at the end of the year, you’ll owe money back.

When you obtain a health insurance plan from the Marketplace and have a change of income or household, contact the Marketplace right away, and consult Community Tax for professional advice. We can strategize a plan based on your current financial situation to avoid owing a balance at the end of the year. We provide our tax services so that you can make the most out of your insurance and stay in good financial standing.

Can Community Tax Help Me Obtain a Premium Tax Credit?

Whether this is your first year using a Marketplace health insurance plan or you’ve participated in the Marketplace for several years, Community Tax can help you maximize your premium tax credit and minimize your balance at the end of the year. We’ve helped over 44,000 clients prepare their taxes and resolve their tax debt. Explore our accounting, bookkeeping, and tax preparation services today and let us work with you to build a path to a better financial future. Contact us at 999.676.4319 and find out more about what we can do for you this tax season.