How to Reconcile the Premium Tax Credit

Reconciling your Premium Tax Credit (PTC) is an important step in the process of receiving financial assistance for healthcare coverage through the Health Insurance Marketplace. The PTC is a tax credit that can help lower the cost of your monthly health insurance premiums. When you enroll in health insurance coverage through the Marketplace, you estimate your income for the upcoming year, and the government uses that information to determine your eligibility for the PTC. The amount of your PTC is based on your estimated income and the cost of the health insurance plans available to you through the Marketplace.

The ‘reconcile’ is the term that is used to lower your monthly payments when you file your federal taxes if you have a Marketplace plan and also use advance payments of the premium tax credit-APTC. In this case, you will compare two aspects:

• The amount of Premium tax credit used by the individual during the year. This is paid directly to the health plan of the individual in order so your monthly payment to be lower. 
• The premium tax credit you qualify for is based on the final income for the year.

Bear in mind that any difference between the two aspects can affect your refund or the tax owed.

Note: One can easily get their Form 1095-A by main by mid-Februray. This can be easily available in your HealthCare.gov account by mid-Janary. In case you fail to get this, you can contact the Marketplace call center.

Steps to Reconcile the Premium Tax Credit

• Acquire the Form 1095-A 
• Next, print Form 8962 and the instructions
• Use the details from the form 1095-A to complete part II of Form 8962
• Now, you need to select the information you need to get the details. 
• Next, you need to complete all the sections of Form 8962. It is in line 26 that you will notice if you have used less or more Premium tax credits that you qualify for according to the final 2022 outcome. This directly affects the amount of your tax due or refund. 
• Now you need to include the completed Form 8962 along with the 2022 Federal tax return.

When you don’t Reconcile your Taxes

There are chances that you might lose out on the savings you are getting for the 2023 plan, in case you had a 2022 Marketplace plan but did not file and reconcile the 2021 taxes. In this case, you will get the following:

• The individual will receive a letter from Marketplace along with various details about what needs to be done. 
• Likewise, you will also receive a Letter 0012C from the IRS.

In case the 2022 tax return has not been filed by you, or have filed the return but have not reconciled the premium tax credit for all the household members, it is required that you do so immediately. Once you have confirmed the 2021 tax return, you don’t need to do anything else.

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The Advance Payment of the Premium Tax Credits

Once you enrol in coverage and require financial assistance the amount of the premium tax credit will be estimated by Marketplace health insurance that the individual is allowed for the year of coverage. In order to get the right estimate for the same, the following are the details that Marketplace will use:

• The family composition
• The household income
• To know if the individuals you are enrolling are eligible for other non-Marketplace coverage.

According to the estimate of the Marketplace, one can either decide to have all, some or none of the estimated credit paid in advance directly to the insurance company on your behalf. These are the payments, that are termed as ‘advance payments’ of the premium tax credit that is paid in advance directly to the insurance company on your behalf. The payments are known as Advance payments of the premium tax credit or advance credit payment- that is lower than what you pay out-of-pocket for the monthly premiums. 

In case the individual does not receive the credit payments, then they will be responsible for the payment of the full monthly premium.

Note: The American Rescue Plan Act of 2021 for the tax years 2021 and 2022, has been enacted on March 11, 2021, helps temporarily expanded eligibility for the premium tax credits by eliminating the rule that taxpayers are not allowed a premium tax credit if his or her household income is above 400% of the federal poverty line.

The Requirement to Repay Excess Advance Payments of the Premium Tax Credit is Suspended: The Tax Year 2020

The requirement to repay excess advance payments of the premium tax credit also known as the excess APTC repayments have been suspended by ARPA, for the tax year 2020. The excess APTC of the taxpayer is the amount by which the taxpayer’s advance credit payments for the year of coverage exceed the premium tax credit that the taxpayer is allowed for the year. 

In case the 2020 return has already been filed by the user, and the excess APTC has been reported or the excess APTC payment has been repaid, then one does not need to file the amended return or take any other action. There is a possibility that the IRS will reduce the excess APTC repayment to zero with no further action required by the taxpayer. Also, the excess APTC on the 2020 tax return will be reimbursed by IRS for the relevant individual as applicable. Also, those taxpayers who receive the letter regarding the missing form 8962 for the tax year 2020 should be disregarded in case they have excess APTC for 2020. In this case, the tax return will be processed by the IRS without Form 8962 for the tax year 2020 by reducing the excess APTC repayment amount to zero.

• In case one has filed the Tax return for 2020, here is what one needs to do:
• If the individual has excess APTC for 2020 then you are not required to report it on your 2020 tax return or file Form 8962, Premium Tax Credit-PTC. 
• In case you are claiming the Net premium tax credit for 2020, then you need to file Form 8962 Premium Tax credit-PTC.

Filing a Federal Tax Return to Claim and Reconcile the Credit for the Tax Years other than 2020

Now, when it comes to tax years other than 2020 if the advance payments of the Premium tax credit are paid to you or some other individual in the tax family. As for the tax family, the term implies every member of the family that comprises every individual that has been claimed in your tax return. This can be you, your spouse in case of joint filing and the dependants. Here, you need to complete Form 8962, Premium Tax Credit-PTC and also attach it with the returns. You will also receive Form 1095-A, Health Insurance Marketplace Statement, which offers you the details about the health care coverage. One needs to use the details from Form 1095-A to complete Form 8962 to reconcile the advance payments regarding the Premium tax credit with the Premium tax credit that is allowed on the tax returns. In the case of filing the return without reconciliation of the advance credit, payment will cause a delay in your refunds. Hence, you need to file an income tax refund for the purpose despite not allowing to do so. 

There are individuals who do not want to get advance credit payment, the full amount of the premium tax credit that you are allowed will decrease the amount of the tax you owe for the year or increase the refund to the extent your premium tax credit is more than the amount of the tax owed by you.

Hence for tax years other than 2020, you need to file the tax return in case:

• The individual claim the premium tax credit
• The Advance credit payment has been paid to the health insurer for the individual or someone else within the tax family. In the case of the premium tax credit, the tax family is every person you claim on your tax return. This includes you, your spouse in case you are filing jointly and the other dependants. 
• The advance credit payment is paid to some other person that has been declared by you to be a part of your tax family to the Marketplace for the year of coverage if that individual has not been included in any tax family.

When Failing to File: The Tax Forms

There are times when one has not filed the tax return either of yours or any individual in your family for the coverage year other than 2020. In this case, you will not be eligible for advance credit payments in the future as well. This implies that the concerned individual will be responsible for the complete cost of the monthly premiums. Additionally, you might also have to pay back some or all of the advance credit payments that have been made on your behalf or by any other individual within your tax family. 

The advance payments of the premium tax credit are reviewed in the fall by the Marketplace for the coming calendar year as a part of their annual enrollment process.

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Conclusion

Essentially the Premium tax credit is a tax credit which offers annual health insurance premiums. It is a manner in which the government pays for some or the entirety of the individual’s private health insurance costs. However, it is the ‘Advancable’ feature of the Premium tax credit that makes it unique. However, if you still have doubts or require further details about the same, be free to reach out to us at +1800-964-3096 or drop a mail at [email protected] or you can also drop by for a LIVE chat at www.accountingadvice.co. Our team of experts will be more than happy to help you out.

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