What is the premium tax credit?
The Premium Tax credit is a federally funded initiative that helps reduce the cost of premiums for insurance purchased through the Health Insurance Marketplace. Families and individuals who earn less than the federal poverty threshold can apply for this credit.
What is the process?
If you are applying for health coverage through the Marketplace you need to estimate your family's annual income. This will allow your insurer to calculate the amount of tax credit that you'll get. This credit will be sent directly to your insurer, which will lower your monthly premiums.
If you qualify for premium tax credits, you will be sent a statement called 1095A by your insurer when you buy your policy. This form reports your premium tax credit amount to the IRS.
Your credit for premium taxes is determined by your estimated household's income, the number of people in your taxfamily (you and your spouse, or both, if you file a joint return), as well as your dependents. Your premium tax credit may change if you have a change in income or your tax family changes.
What happens when your income exceeds what you expected to earn?
Your premium tax credit may need to be repaid if your household income rises during the year. The maximum amount you can repay is 400 percent your household's annual income. This is known as the "clawback."
How does it work if your income changes
Report any changes to your income as soon as you can. You can avoid having to repay excess premium credit at the year's end.
The amount of money you must pay back is determined by your income, and whether it is above or below the poverty level. The instructions for Form 8962, which is used by individuals to report health insurance costs through the Health Insurance Marketplace, outline the rules.
What is Form 8962?
You'll need the amount of your 2021 advance premium tax credit when you file your return. The amount you have to pay back will depend on the results of the reconciliation of the advance premium tax credit that you received during 2021 with your actual premium credit for that year.
On Form 8962, you reconcile the advance tax credit received in 2021. This form can be found on the website of your state or the IRS.
The IRS will also require that you report the results of your reconciliation of the advanced premium credit that you received in 2021. Line 29 in Part III of your 2021 federal income tax return will show the results.
There are some exceptions to this rule, such as if your household income is above 138% of the poverty level in states that have not implemented the ACA's Medicaid expansion or if you received unemployment compensation for any week beginning in 2021. These exceptions apply only to the income reported on your 2021 taxes.