Last week, I gave an overview of how Obamacare will affect your tax return this year. As a reminder, not much will change for the majority of us. But thoseof you that obtained coverage through the Health Insurance Marketplace may receive an additional benefit from the Premium Tax Credit. Here’s what you need to know about the credit and how to claim it.
What is the Premium Tax Credit?
The premium tax credit helps reduce some of the costs of health insurance for people with moderate incomes. In order to be eligible for the credit, you need to:
- buy health insurance through the Marketplace;
- be ineligible for coverage through an employer or government plan;
- fall within certain income limits;
- not file a Married Filing Separately tax return (unless you meet criteria which allows certain victims of domestic abuse and spousal abandonment to claim the premium tax credit using the Married Filing Separately filing status); and
- not be claimed as a dependent by another person.
How to Claim the Credit
You can receive the credit in one of two ways: 1) have advance credit payments paid directly to the insurance company to lower the premium costs, or 2) wait to claim the credit on your federal income tax return.
Those who choose to get the advance payment should report changes in your circumstances – getting married or obtaining a new job – to the Marketplace. Such changes could affect the amount of assistance you can receive.
When you file your return, you will have to reconcile the advance payments with the amount of credit allowed on your return. If you received too much, you will have to add the overpayment to the tax you owe. If you received too little, you will get to take the additional amount from your tax liability.
Anyone receiving the credit – rather the advanced credit or claiming on his/her return – needs to file Form 8962, Premium Tax Credit with his or her Form 1040.
Words of Warning
Determining the advance credit will be trickier for the self-employed, since self-employment income can vary so much. It may be easier to get the credit when you file your return, rather than trying to obtain the advanced credit and find out you have to pay some or all of it back.
If you’ve already claimed the credit, you can rest a little easier in knowing that, at least for this year, the IRS has waived the late payment or underpayment of tax penalty if the additional amount owed resulted from repayment of excessive premium tax credit payments.