CARL WATTS & ASSOCIATES

May 30, 2016

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The Premium Tax Credit -
Keep Up with the Changes
It is so tempting to leave everything tax related behind and look forward to a beautiful summer time. But, apart from learning something useful, keeping up with, and being in control of changes that may occur, can save you time, money, and a lot of trouble.

So, please consider the following. When you applied for assistance to help pay the premiums for 2016 health coverage through the Marketplace, the Marketplace estimated the amount of your premium tax credit.

Advance payments are based on an estimate of the premium tax credit that you will claim on your federal income tax return. You may be receiving the benefit of monthly advance payments to lower what you pay out-of-pocket for your monthly premiums. Doing a PTC check-up now will help you avoid large differences between the advance credit payments made on your behalf and the amount of the premium tax credit you are allowed when you file your tax return next year.

Let’s do a quick summary of the subject and all of these terms to make everything clear.



First of all, open enrollment for 2016 health coverage ended January 31, 2016, and the open enrollment period for 2017 is November 1, 2016 — January 31, 2017.


The premium tax credit, or PTC, is a refundable credit that helps eligible individuals and families with low or moderate income afford health insurance purchased through a Health Insurance Marketplace. To get this credit, you must meet certain requirements and file a tax return.


You are eligible for the premium tax credit if you meet all of the following requirements:

  • Have household income that falls within a certain range.
  • Do not file a Married Filing Separately tax return (unless you meet the criteria in the regulations, which allows certain victims of domestic abuse and spousal abandonment to claim the premium tax credit using Married Filing Separate.)

  • Cannot be claimed as a dependent by another person.

  • In the same month – a coverage month – you, or a family member:
- Enroll in coverage through a Health Insurance Marketplace;

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Are not able to get affordable coverage through an eligible employer-sponsored plan that provides minimum value;

-
Are not eligible for coverage through a government program, like Medicaid, Medicare, CHIP or TRICARE;

-
Pay the share of premiums not covered by advance credit payments.


During enrollment through the Marketplace, the Marketplace will determine if you are eligible for advance payments of the premium tax credit, also called advance credit payments. Advance credit payments are amounts paid directly to your insurance company on your behalf to lower the out of pocket cost for your health insurance premiums.



Based on the estimate from the Marketplace, you can choose to have all, some, or none of your estimated credit paid in advance directly to your insurance company on your behalf to lower what you pay out-of-pocket for your monthly premiums. These payments are called advance payments of the premium tax credit or advance credit payments. If you do not get advance credit payments, you will be responsible for paying the full monthly premium.


If you received the benefit of advance credit payments, you must file a tax return to reconcile the amount of advance credit payments made on your behalf with the amount of your actual premium tax credit. You must file an income tax return for this purpose even if you are otherwise not required to file a return.

If you choose not to get advance credit payments, you can claim the full benefit of the premium tax credit that you are allowed when you file your tax return. This will increase your refund or lower the amount of tax that you would otherwise owe.

If you purchase health insurance coverage through the Marketplace and get assistance in paying premiums through advance credit payments made on your behalf, it is important to report life changes to the Marketplace throughout the year. Certain changes to your household, income or family size may affect your premium tax credit, tax refund or cause you to owe tax. Reporting these changes promptly will help you get the proper type and amount of financial assistance.


Changes that can affect the amount of your actual premium tax credit include:

  • Increases or decreases in your household income including lump sum payments like a lump sum payment of Social Security benefits;
  • Marriage or divorce;
  • Birth or adoption of a child;
  • Other changes affecting the composition of your tax family;
  • Gaining or losing eligibility for other health care coverage including eligible employer- sponsored coverage or government sponsored coverage such as Medicare;
  • Gaining, losing or other changes to employment;
  • Moving to a different address.


When changes affect your PTC, the IRS will either subtract the difference from your refund or add it to your taxes owed. If you end up owing money due to excess advance payments, you should consider adjusting the amount of those payments now to avoid any issues when you file your 2016 tax return next year. Similarly, if you got a refund that was larger than you expected, you could increase the amount of the advance payments of the credit sent to your provider on your behalf, which will lower what you pay out-of- pocket for your monthly premiums.

The Premium Tax Credit Change Estimator can help you estimate how your premium tax credit will change if your income or family size changes during the year. This estimator tool does not report changes in circumstances to your Marketplace.

To report changes and to adjust the amount of your advance payments of the premium tax credit you must contact your Health Insurance Marketplace. And always check our newsletters to find out ways to improve and keep up with all news tax related, and more.
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