You may have a general understanding of the premium tax credit, especially if you have experience with health insurance coverage via the Marketplace. But the advanced premium tax credit has some complexities that might still be foggy areas for you. How do you know if you’re eligible for the discounts, and how do you calculate the amount of credit applicable to your household? These can be challenging questions for anyone browsing the Marketplace. Whether this is the first time you’ve looked for health insurance through the exchanges or you’re a veteran insurance shopper, there are a few things you’ll likely need to know about the advanced premium tax credit.
Not everyone will be eligible for the advanced premium tax credit. And each individual’s situation may vary, especially when it comes to household dynamics, tax filings, and income levels. But here are a few basic benchmarks to understanding the Marketplace eligibility requirements.
Start with a Snapshot of Last Year
Since it’s impossible to predict what your life will be like this year, the Marketplace uses estimates of what life was like for you in the previous year to determine tax credits. For example, using the information you provided when you filed last year’s taxes will offer a projected household income. It will also document your family composition, including any dependents you claim and marital status.
Household Income Requirements
For the most part, the advanced premium tax credit is based on your projected income as it relates to a specified range. The federal poverty line for your sized family will be calculated first. Then your annual income estimate is compared and should fall between 100% and 400% of that federal poverty number.
Filing Requirements for Eligibility
You may not be able to file a Married Filing Separate return unless you qualify for a few special allowances, including domestic violence or spousal abandonment. You are not eligible for the advanced premium tax credit if someone is claiming you as a dependent on their tax filings. These premium credits will also only apply if you are not eligible for coverage through one of the various government programs, including Medicare, Medicaid, or CHIP.
Determining the Amount
Once you have determined your eligibility for the advanced premium tax credit, it’s time to apply and determine just how much of a credit you are being allowed. To understand your determined amounts, there are a few things to know.
Who Calculates Your Savings?
The good news for those who consider themselves not so good at math or calculating estimates, the Marketplace will do the math for you. When you browse the Marketplace for a new health insurance plan, the advanced premium tax credit application is part of the enrollment process. The savings will be calculated for you, and upon selection of the advanced payment, whereby those amounts are submitted to the insurance company directly to offset your monthly premiums, the credit is automatically applied. The premiums you will be responsible for throughout the year will be the remaining monthly cost after the APTC is applied.
What Amounts Usually Look Like
Every household and family dynamic is different, so projecting a range of tax credit averages is nearly impossible. However, the savings are typically in line with the premiums for one of the second-lowest silver plans you can find on the Marketplace. This is minus a certain percentage of your household.
It Can’t Be More Than Premiums
The advanced premium tax credit can fall into a wide range of amounts. However, it will never be a figure higher than the premium of the plan you’re looking to purchase. In other words, this tax credit won’t ever exceed the monthly payment or offer any immediate refund to you in any way.
Leveraging the Advanced Premium Tax Credit
Once your premium tax credit is determined, you can choose to take it as an advance, where it applies immediately to the health insurance premiums of the plan you’re selecting. But it’s important to know that you will be held accountable to that number when you next file for your income taxes.
A Form 8962 Filing Requirement
Advancing the payment requires you to file a Form 8962 to reconcile the amount of tax credit you received against what you actually earned that year. It will also compare with your previously estimated family dynamic, with how many you claim, and how you file. Not filing a federal tax return can translate to you owing for the full cost of the monthly premiums.
An Over-Projection Means Paying Back
If the credit you leveraged in advance for the previous year’s premiums is more than you are allowed based on actual income, you may have to pay some of those funds back. There are repayment caps limiting how much some households have to pay back, based on their income benchmarks to the poverty line. If your actual income for the year exceeds 400% of this poverty line, you will be responsible for paying back the full overage amount of the APTC above which you were entitled. It may be taken from a refund or submitted as a tax bill.
An Under-Projection Means a Bigger Tax Return
This year has been a financial challenge for many families. If your original projections were higher than what you actually collected for income this year, you might be entitled to a more substantial savings. The difference will be added to your tax refund or taken from any tax balance due you already have.
If you’re ready to file your taxes for the 2020 financial year, an accounting professional can help you review the forms you’ll need to collect from the Marketplace regarding your coverage and any tax credits you leveraged. And if you need to buy a new health insurance plan during a special enrollment period yet this year, browse with W3LL.
Answering a few short questions about your household will help you determine your eligibility and calculate tax credits for you. Our free services allow individuals and families to tap into the benefits of the advanced premium tax credit and understand how to best make estimates and projections. Visit today to learn more and find an affordable health insurance plan.