What is premium tax credit?
The Premium tax credit, a federally-funded initiative, reduces your insurance premiums if you buy coverage via the Health Insurance Marketplace. The program is open to all families and individuals earning below the federally defined poverty level, as long as they meet certain eligibility criteria.
What is the process?
You estimate the income of your family when you apply for insurance via the Marketplace so that your insurer knows how much tax credit to give you. This credit is then sent directly to your insurance company, lowering your monthly premium costs.
If you're eligible for a credit on premiums, your insurance company will send you an "Health Insurance Marketplace Statement", or 1095A, when they issue your policy. The form also reports the amount of your premium tax credit to the IRS for tax purposes.
Your premium tax credit is based on your estimated household income and the size of your tax family (yourself, your spouse if filing a joint return, and your dependents). If your income changes during the year, or if your tax family size changes, then your premium tax credit will change.
What happens if the income you receive is more than you had expected?
You may have to return part or all your premium tax credits if you increase your income during the year. The maximum amount you can repay is 400 percent your household's annual income. This is also known as "the clawback."
How does it work if your income changes
Report any changes to your income as soon as you can. This will help you avoid paying back excess premium tax credit at the end of the year.
The amount you have to pay back depends on your income and whether or not your income is above the poverty line. The rules are outlined in the instructions for Form 8962, which is used to report information related to claiming an offset to the cost of purchasing health insurance through the Health Insurance Marketplace.
What is Form 8962?
When you file a tax return, it's important to include the amount you received as an advance premium tax credits in 2021. 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.
This form is used to reconcile any advance premium credit that you may have received between 2021 and now. This form can be found on the website of your state or the IRS.
IRS: You will need to provide the IRS with the results of a reconciliation of the credit for advance premiums you received in 2020. This will be shown on your 2021 federal tax return, on Part III, line 29.
This rule is not applicable if, for example, your household income exceeds 138% of poverty in a state that hasn't implemented Medicaid expansion under the ACA or if you have received unemployment benefits in any given week starting in 2021. These exceptions apply only to the income reported on your 2021 taxes.