What is the Premium Tax Credit?
The Premium Tax Credit is a refundable tax credit that can be claimed by eligible individuals and families with low to moderate incomes (between 100 and 400% of the federal poverty line) to help them afford health insurance purchased through the Health Insurance Marketplace (or the Exchange) at HealthCare.gov.
You must file a tax return efile it in order to claim the credit. Claim the credit in one of the following ways:
- Have the credit paid in advance to your insurance company in order to decrease your monthly premium payments (you will need to reconcile the amount paid in advance with the actual credit you calculate) OR
- Claim all of the credit on your tax return.
Find out if you qualify for the premium tax credit by preparing and efiling your return on efile.com. Once you answer a few simple tax questions, we will use your answers to determine your eligibility (as well as your credit amount).
Did the IRS send you a reminder to file a tax return and Form 8962? Learn how the IRS reminder letter may affect your premium tax credit.
Do I Qualify for the Premium Tax Credit?
You may qualify for the credit if you meet all of the following requirements:
- you do not qualify for coverage through an employer or government plan,
- you buy health insurance through the Marketplace,
- you are within certain income limits,
- you cannot be claimed as a dependent on another person's tax return AND
- you do not file as Married Filing Separately (unless you are a victim of domestic abuse and spousal abandonment).
Do I Qualify for the Premium Tax Credit If I Enroll in Health Insurance Through My Employer?
You are not eligible for the credit if you enroll in an employer-sponsored plan (including retiree coverage), even if the plan is unaffordable or fails to provide minimum value.
Do I Qualify for the Premium Tax Credit If I Use the Married Filing Separately Tax Return Status?
Generally, you cannot use the Married Filing Separately filing status and claim the Premium Tax Credit on your tax return. However, there is an exception for taxpayers who are victims of domestic violence and spousal abandonment; they can claim the relief from the Married Filing Jointly filing status requirement for no more than three consecutive years).
According to the IRS, a married taxpayer who lives apart from his or her spouse for the last six months is considered unmarried for the entire year if he or she meets the following requirements:
- Files a separate tax return,
- Maintains a home with a dependent child for more than half the year, AND
- Furnishes over half the cost of the household during the year.
What Are the Qualifications for the Premium Tax Credit?
Individuals and families whose household income is between 100 and 400% of the federal poverty line for their family size are generally eligible for the credit.
What Is the Federal Poverty Level?
The federal poverty guidelines are established each year by the U.S. Department of Health and Human Services.
What Are the Income Values Under the Federal Poverty Line?
Below are the 2015 income values that fall between the 100 and 400% federal poverty line (for residents of one of the 48 contiguous states or Washington D.C.). You can use these values for your 2016 tax return:
- $11,670 (100%)-$46,680 (400%) for one individual
- $15,730 (100%)-$62,920 (400%) for a family of two
- $23,850 (100%)-$95,400 (400%) for a family of four
Will I Qualify for the Premium Tax Credit If I Am Also Eligible for Coverage Through My State's Medicaid Program?
Unfortunately, individuals will not qualify for the credit if they are also eligible for coverage through their state's Medicaid program that is above the federal poverty line levels.
What is Household Income?
For the purposes of qualifying for the Premium Tax Credit, it is your modified adjusted gross income (AGI) plus the AGI of every other individual in your family who can claim a personal exemption and is required to file a tax return. Modified AGI is your AGI plus any excluded foreign, nontaxable Social Security benefits (including Tier 1 Railroad Retirement benefits) and tax-exempt interest received or accrued during the Tax Year. However, it does not include Supplemental Security income (SSI).
How Do I Claim the Premium Tax Credit?
If you apply for health insurance in the Marketplace and you qualify for the credit, you will need to claim the credit on your tax return, regardless of whether or not you are required to file a return. Use Form 8962, Premium Tax Credit, to calculate and report your Premium Credit amount on your return.
How Will the Marketplace Estimate My Premium Tax Credit?
The Marketplace will use the information you provide to them about your family and household income to estimate to credit amount you can claim on your tax return. You can use that estimate to decide if you want to have all, some, or none of your credit to be paid directly to your insurance company in advance so the credit can be applied to your monthly premiums.
What If I Want to Have Some of All of My Credit Paid in Advance?
You will be required to report on your tax return the difference between the amount of advance payments that the government sent on your behalf and the premium tax credit that you may claim based on your family size and household income.
What If I Don't Want to Have Any of My Credit Paid in Advance?
You can claim the entire credit on your tax return, which will either increase your refund or lower the amount of taxes you owe.
How is My Premium Tax Credit Amount Determined By the Affordable Care Act?
The Affordable Care Act (AKA Obamacare) bases your credit amount on an income scale. Households and individuals with lower incomes get a larger credit, while those with higher incomes receive a smaller credit.
Since the premium tax credit is also refundable, you will receive the difference of the credit amount and your tax liability if your credit amount is more than your tax liability. If you don't owe any taxes, you can get the full amount of the credit as a refund. However, if you receive advance payments of the credit, you will need to reconcile the payment with the actual premium tax credit amount (which is calculated on your tax return).
If the credit on your return is less than your advance credit payments, the difference of the two values will either be added to your balance due or subtracted from your refund. However, if the credit is more than your advance credit payments, the difference will subtracted from your balance due or added to your refund.
How Will I Know What to Report on My Tax Return If I Get Insurance Through the Marketplace?
The Marketplace will send you Form 1095-A, Health Insurance Marketplace Statement, showing your premium amounts and your advance credit payments by January 31 of the year following the year of coverage. For the 2016 Tax Year, you should receive your 2016 coverage statement by January 31, 2017. You can use the information from the statement to calculate your premium tax credit on your 2016 tax return, as well as reconcile the advance credit payments made on your behalf with the actual premium tax credit amount.
What If Something in My Income or Family Situation Changes?
You will need to report any changes to the Marketplace to make sure you get the correct advance payment amount.
What Changes Do I Have to Report to the Marketplace?
You should report any life-changing events to the Marketplace, including:
- Marriage or divorce
- Changes in individual or household income
- Changes in physical address
- Birth or adoption
- Losing or gaining health care coverage or eligibility
- Incarceration or release from incarceration
- Other changes affecting household size and income
Please be aware that these changes may allow you to apply for insurance through the Marketplace during its special enrollment period that permits health care plan changes after the original enrollment deadline. Generally, the special enrollment period is open for 60 days from the date of the life event.
What is the Deadline to Report Changes to the Marketplace
For Tax Year 2016 (coverage in 2017), the deadline to report changes to the Marketplace is February 15, 2017.
Does My IRS Letter Affect My Premium Tax Credit?
Important: The information below only affects you if you did NOT file a 2014 tax return.
Did you receive a letter from the IRS that looks like this? (click the link below to see an example of the letter in a new window):
Sample letter from the IRS about filing a return and Premium Tax Credit
If so, this is a legitimate letter from the IRS informing you that according to their records, you bought insurance from the Marketplace, but you have not filed a 2014 tax return. It goes on to state that if you do not file a 2014 tax return (usually within 30 days from the date listed on the letter), you will not qualify to claim the Premium Tax Credit on your 2015 tax return (and receive advance tax credit payments in 2016).
I Have No Income. Do I Have to File a Tax Return?
Yes, the IRS requires you to file a tax return so you can continue qualifying for advance tax payments on your health insurance from the Marketplace. However, you can still prepare and efile your tax return on efile.com.
If you have no income during the Tax Year, but wish to prepare and efile a tax return in order to receive the premium tax credit, enter $1.00 as your income in the efile.com income section.
How Do I Prepare and efile a Tax Return If I Have Income?
If you had income during the Tax Year, enter the income that corresponds with your income records.
How Do I Receive More Help on Preparing and Efiling My Tax Return?
For further assistance, contact efile.com support and we'll help you file your return so you can fulfill the IRS requirement and claim advance tax payments.
When Should I File My 2014 Tax Return?
Since health insurance Marketplaces determine eligibility for advance payments and/or cost-sharing reductions for 2016 coverage in fall 2015 (open enrollment for 2016 coverage starts on November 1, 2015), the IRS urges you to file your return as soon as possible. Preparing and filing your return online is the fastest way to send your return to the IRS so you're ready to qualify for advance tax payments next year. However, efiling is over for 2014 returns so you will need to manually prepare your 2014 return and mail it to the IRS to file it. You can obtain forms for your 2014 on efile.com.
More Tax Information on Health & Medical Expenses
What is Obamacare (Affordable Care Act)?
What Medical Expenses Can I Deduct on My Tax Return?
Health Savings Accounts and Taxes