IRS Form 8962 allows you to claim the Premium Tax Credit. Who’s eligible for the Premium Tax Credit? And how do you file Form 8962? Here’s everything you need to know about this tax form.
What Is the Health Insurance Marketplace?
To understand IRS Form 8962, you need to know about the process of buying health insurance through the Health Insurance Marketplace.
When you want to buy affordable health insurance, you can use the Health Insurance Marketplace to find a reasonably-priced health insurance plan that fits your budget. It’s an online resource where you can find information on different types of health insurance plans, like how much you should expect from a plan’s premiums and out-of-pocket costs. The Department of Health and Human Resources regulates the Marketplace and includes up-to-date information on its health insurance plans.
To enroll for insurance through the Marketplace, you need to apply during the open enrollment period. In most states, the open enrollment period lasts from November 1 through December 15. Some states offer a longer open enrollment period—California, for example, extends the enrollment period through January 31. Under special circumstances, you may be able to apply through a special enrollment period to gain health insurance. Special circumstances include:
- Losing your job/getting a new job
- Getting married/divorced
- Becoming a widow/widower
- Having a child
What Is a Premium Tax Credit?
Low income and middle income individuals and families may have difficulty paying the premiums on health insurance bought through the Marketplace. That’s where the Premium Tax Credit can help. The Premium Tax Credit, or PTC, is a refundable tax credit that can help recoup the costs of premiums for Marketplace health insurance plans.
The size of your premium tax credit depends on your level of income; the lower your income, the higher the tax credit you’ll receive to cover your premiums.
Do I Qualify for the Premium Tax Credit?
You may qualify for the Premium Tax Credit if you bought health insurance through the Marketplace.
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.
As mentioned earlier, the Premium Tax Credit is weighed on a sliding scale, so the lower your income, the larger your tax credit.
You can only receive a premium tax credit if you have insurance through the online Marketplace. You are ineligible for the Premium Tax Credit if you are self-insured or if you get insurance through an employer.
Advanced Premium Tax Credit (APTC)
The Marketplace makes an estimate of your tax credit using certain factors, like your projected income and the number of dependents in your family. Once you receive your estimate, you can decide how much of your tax credit you can send directly to your insurance company to cover your monthly premium. So, instead of receiving your tax credit at the end of the year, you can use some of your credit each month to help pay for the cost of your premium. These are called Advanced Premium Tax Credit (APTC) payments.
You don’t need to use your credit each month. You can also wait to receive it in the form of a tax refund when you file your annual tax return. In either case, you’ll need to file Form 8962 with your tax return.
What is IRS Form 8962?
IRS Form 8962 is the tax form that you’ll use to claim the Premium Tax Credit.
If you didn’t utilize any APTC payments during the year, then you’ll use Form 8962 to calculate your PTC amount and how much you’re owed on your refund.
If you had APTC payments during the year, you’ll use Form 8962 to determine whether you’re owed some of your credit on your tax refund, or whether you owe money to the IRS. For instance, if you received more APTC funds than what you were eligible for, you’ll have to pay back the difference to the IRS. Conversely, if you didn’t use all of the APTC funds that you were eligible for, you can get the remaining amount via a tax refund.
Here are a couple of examples:
- Your PTC is $3,000 — Your APTC payments were $2,000 — You have $1,000 to be refunded
- Your PTC is $3,000 — Your APTC payments were $3,200 — You owe $200 to the IRS
IRS Form 8962 will walk you through the process of calculating how much of your PTC you’re owed or owe.
But why would there be a discrepancy? If the Marketplace estimates that you’re owed a certain amount of PTC, why would that amount be different by the end of the year?
It’s mostly due to life changes that may happen to you during the tax 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.
How to File Form 8962
IRS Form 8962 is divided into five parts.
On Part I, you’ll enter:
- Your exemptions and modified adjusted gross income (from your 1040 or 1040NR)
- Household income as a percentage of the poverty line (use the instructions at the end of the form to help with this)
Part I will provide you with your annual and monthly contribution amounts, which you’ll enter on lines 8a and 8b.
Part II is where you’ll reconcile your premium tax credit with your advance payments. If you had Marketplace coverage for the whole year, enter your annual totals on line 11. Otherwise, use the monthly tables to enter each of your monthly contributions.
At the end of Part II, you’ll have three numbers: your total PTC, your total APTC, and your net PTC. Follow the instructions to determine whether you’re owed a refund or if you owe money to the IRS.
If you’re PTC is greater than your APTC, then you’re getting a refund. If they’re equal, you’ll just write zero and won’t pay or receive anything. If your APTC is greater than your PTC, then you owe money to the IRS and you’ll use Part III to determine how much you owe.
Part IV is only for those who share a health care plan between “tax families.” Follow the instructions to determine whether or not that’s a section you need to complete—most people don’t have to.
Part V is only for couples who got married during the tax year.
When Do I Need to File Form 8962?
IRS Form 8962 needs to be filed with your annual tax return. The deadline to file your taxes is April 15. If you won’t be able to complete your tax return by the deadline, be sure to file a tax extension request with the IRS.
Can Community Tax Help Me Claim the 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.