Advanced Premium Tax Credits

Whats A Premium Tax Credit

Advanced Premium Tax Credits (APTC) are refundable credits available to families, and in advance for use in purchasing health insurance plans through state or federal marketplaces (also known as exchanges).

APTC is available for families with the lowest income brackets. These claims are based on the combination of expected household income in a particular year and the cost of the plan you are going for.

APTC may be available immediately upon enrollment in a health plan (where you choose to have the APTC go directly to the insurer to lower monthly premiums) or defer the claim until when filing taxes.

APTCs were created by provisions of The Affordable Care Act (ACA) of 2013 and further reinforced by the American Rescue Plan Act of 2021(ARPA).

How Do Premium Tax Credits Work

Families sign up for health insurance through the marketplace

They will provide data on income, household size, and current insurance data.

Remember APTC is based on projected income and household size, so any changes in the household should be reported.

The marketplace will determine eligibility and how much to receive- APTC available for utilization

 Designed so that a family cannot spend any more than a certain percentage of their income on health using a sliding scale

The marketplace caps the family’s expected contribution towards the premium for the mid-range (Silver) benchmark plan. Its calculated based on the cost of the second-lowest-cost Silver plan available to a family minus their expected household contribution (6.3% to 9.5% of income).

Any increase or reduction in income will reduce or increase APTC or make a taxpayer ineligible. Incomes between 100% and 400% FPL automatically qualify in all states (You may qualify if income is above 400% FPL in the year 2022).

APTC is paid directly to insurers to lower the premiums payable by the family.

PTC will cover the difference between the actual cost of health care and the family’s contribution.

If you utilize more advance payments of the tax credits than you qualify for in comparison to your final yearly income, you will be liable to repay the difference when filing the federal income tax return.

Should you access less APTC than you qualify for, the difference is a refundable credit when you file your taxes.

There is no need to wait for year-end to utilize the credits when filing taxes

Reconciliation of the final tax credits on filing federal income taxes.

 At tax time, projected income and household size will be compared with actual income and household size and reconciled. It’s recommended that any changes in your household are promptly reported.

Eligibility for Premium Tax Credit

You are deemed to be eligible for the APTC when you meet all of the following requirements. You or your;

Household income falls within a certain range. 

• If the Income range falls between 100% and 400% FPL.

  If your income is equal to or less than 150% FPL, it’s possible to enroll or change your Marketplace coverage through the Special Enrollment Period.

• Income is above 400% FPL in 2022/2021.

  For incomes above 400% FPL, the American Rescue Plan Act of 2021 (ARPA) allowed temporary eligibility.

• Unemployment Compensation.

  If the taxpayer, or their spouse (when filing a joint return), has received or has been approved to receive, unemployment compensation for any week in the year 2021. In this case, the household income is considered to be less than 133% of the federal poverty line for the family size.

You are not filing a married filing separate tax return.

• IRS does not consider you eligible if filing under married filing separately the only exception being if one partner is either a victim of domestic abuse or spousal abandonment and meets set criteria.
• In General, a taxpayer is considered separate if they live away from their spouse for at least six months of the tax year, maintain another household for more than six months that is considered the main home of the taxpayer’s dependent child, and is furnishing that home than half the cost during that tax year.
• Remember, this exception cannot be claimed for three years in succession.

Not a dependent on another taxpayer

• If you have not been listed as dependent by another taxpayer.

Currently Enrolled via a marketplace

• The taxpayer or family member is enrolled via a marketplace and paid at premiums at least a month by the original due date of tax returns and was not eligible for other covers (like MEC, workplace plan, etc.).
• Premiums can be paid either through advance credit payments, by self, or by someone else.

Do not have access to employer-sponsored plans

• The taxpayer cannot access affordable coverage through an eligible work plan that provides minimum value. The APTC is there to help households that don’t have employer-sponsored insurance and are also not eligible for public programs

Citizenship/Immigration status

• The APTC is available to American individuals and families whose incomes fall between the poverty line and 400% FPL. And are also purchasing health insurance in the Federal or State marketplace.
• It’s accessible to lawfully present immigrants whose incomes fall below the poverty line and who are not eligible for Medicaid due to their immigration status.

Access to other Minimum Essential Coverage (MEC)

• The APTC is off-limits for taxpayers eligible for other Minimum Essential Coverage (MEC). MEC includes Medicare or Medicaid, or employer-sponsored coverage that is considered adequate and affordable.

Catastrophic coverage

• Any taxpayer who signs up for catastrophic coverage will not qualify for health insurance tax credits.

Premium Tax Credit Repayment Exceptions

In 2020, the American Rescue Plan Act of 2021(ARPA) waived the requirements to pay excess advance payments of the APTC for the tax year 2020. Taxpayers do not have to pay back any excess APTC for the year 2020 only.

If the 2020 return is already filed and shows excess APTC, or you have already made an excess APTC repayment, there is no need to amend the return or take any further action.

The IRS will write off the excess APTC and reimburse any excess APTC declared on the taxpayer’s 2020 tax return.

Prior communication from IRS regarding missing Form 8962 for the tax year 2020 should be disregarded. IRS will still process tax returns without Form 8962 by writing off the excess APTC amounts to zero.

If you had not filed your 2020 tax return, here’s how to go about it:

• Do not report on your tax return or file Form 8962 for any excess APTC. It’s not a requirement for 2020.
• Do report if you are claiming any APTC for 2020. File Form 8962, for the APTC.

Premium Tax Credit Form 8962

If you enrolled in a plan through the Federal or a State Marketplace and paid with an advanced premium tax credit, or looking to make a claim for a premium tax credit on your tax return, then you need to attach IRS Form 8962(Premium Tax Credit)  with your federal income tax return for that tax year

IRS Form 8962 calculates and reconciles the APTC for eligible taxpayers who obtained cover in the marketplace.

Any taxpayer who enrolls in a health plan through a Marketplace will receive Form 1095-A (Health Insurance Marketplace Statement). This needs to be completed alongside Form 8962.

Bottom Line

APTC can be accessed in one of the following ways:

• You can have it paid in installments and in advance to your insurance company. This has the effect of decreasing your monthly premium payments. Please remember to reconcile the advance credits versus the actual credit calculated at year-end. or
• Simply Claim the whole credit when filing your tax return.

You may still be eligible for APTC even if your income is above 400% of the FPL. The ARPA (2021) eliminated the so-called “subsidy cliff” of 400% of the FPL for 2021 and 2022. Should you qualify, health insurance rates are capped at 8.5% of income household income, with applicable APTC offsetting the cost.