The Health Care Premium Tax Credit is a benefit for individuals and families that were made available under the Affordable Care Act. While the law has been challenged and debated, this benefit is still available to help pay for the cost of obtaining or maintaining health insurance coverage.
How It Works:
The Premium Tax Credit is a refundable federal income tax credit that is available for taxpayers who meet certain income criteria and enroll in health insurance through a state- or HHS-run Affordable Insurance Exchange or “Marketplace” because they were ineligible or were not provided insurance through their employer. So, the first step you need to follow to claim the credit is to purchase and enroll in a health insurance plan through the Marketplace. For purposes of claiming the credit, you must generally enroll as of the first day of the month.
As part of the application process, you can elect to have some or all of your estimated premium tax credit paid in advance in order to lower your monthly health insurance premiums. Even if you are not eligible for advance payments, the credit can still offset your overall health care costs by reducing the amount of taxes you will owe on your return or increasing your tax refund.
Once you have done this, the Health Care Premium Tax Credit can be claimed by filing Form 8962 on your tax return.
To complete the form, you will need to know:
- Your family size
- Your household’s modified AGI, which is your Adjusted Gross Income as reported on your tax return, plus:
- Any tax-exempt interest from state or municipal bonds
- Any foreign earned income and/or foreign housing exclusion
- Any Social Security benefits that were not taxable
- Your monthly annual health care enrollment premiums
How Much is the Credit:
The Premium Tax Credit is generally the lesser of:
- The monthly premium for the second-lowest-cost “Silver”-rated plan available through the Marketplace, less a percentage of your household income; or
- The actual premiums for the Marketplace plan or plans in which you or your family enroll
Who Can Claim the Credit:
You may be eligible to claim the credit if:
- Your household income is at least 100%, but no more than 400% of the federal poverty line for your family size
- You or a family member enrolled in insurance through the Affordable Care Act Marketplace
- At least one member of your family is not eligible for coverage through an employer-provided affordable health insurance plan or through a government program such as Medicare, Medicaid, or Tricare
- For 2020, an employer-provided health insurance plan is considered “affordable” if the annual premium you are required to pay for self-only coverage is less than 9.78% of your household income
- You cannot be claimed as a dependent on someone else’s tax return
- Your filing status is anything other than Married Filing Separately
- You paid all health insurance premiums that were due during the year
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Given the ongoing debate between Congress and the White House over the future of this legislation, there may be changes to existing guidance from the Treasury and other federal agencies on how individual taxpayers and their families can take advantage of these and other programs to help themselves and their families in a post-COVID-19 economic environment.
Our entire Team at MillerMusmar CPAs is here to help you navigate through these programs. Please contact us if you require our assistance.
Please be advised that, based on current IRS rules and standards, the advice contained herein is not intended or written by the practitioner to be used and cannot be used by the taxpayer for the purpose of avoiding penalties.
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