The IRS will reconcile subsidies – for better or worse – using Form 8962, “Advance Payments of the Premium Tax Credit”. You’ll submit this with your taxes if you or someone in your tax family received any subsidies.
Why do I have to pay back Obamacare subsidies?
- Why Do I Have to Pay Back ObamaCare Subsidies? If you projected a higher annual household income then you claimed, you may owe tax credits you received in advance up to the repayment limit for your income Obamacare Facts Toggle navigation
How do you pay back Obamacare?
You calculate the amount you have to repay by completing IRS Form 8962, Premium Tax Credit. If you don’t pay back the amount due when you file your taxes, the IRS will deduct it from your tax refund, if any. For example, if your 2021 income is $100,000, you are required to pay no more than $8,500 for ACA coverage.
Do you have to repay Obamacare subsidies?
For 2020, excess subsidies do not have to be repaid. And for 2021 and 2022 only, the ARP allows people with income above 400% of the poverty level to qualify for premium subsidies.
Do I have to pay back the advance premium tax credit?
If at the end of the year you’ve taken more premium tax credit in advance than you’re due based on your final income, you’ll have to pay back the excess when you file your federal tax return. If you’ve taken less than you qualify for, you’ll get the difference back.
Do I have to pay back the premium tax credit in 2022?
If your income for 2022 turns out to be greater than the amount you estimated when you sign up, you may have to repay some or all of the excess credit. But, when you file your 2022 return, your actual income turns out to be 410% FPL and you would only be eligible for a $3,100 tax credit based on that income.
Do I have to pay back the premium tax credit in 2021?
For the 2021 tax year, you must repay the difference between the amount of premium tax credit you received and the amount you were eligible for. There are also dollar caps on the amount of repayment if your income is below 4 times the poverty level.
How can I avoid paying back my premium tax credit?
The easiest way to avoid having to repay a credit is to update the marketplace when you have any life changes. Life changes influence your estimated household income, your family size, and your credit amount. So, the sooner you can update the marketplace, the better. This ensures you receive the correct amount.
How does 1095-A affect my refund?
Keep your Form 1095-A with your other tax records. Starting with the 2019 plan year, the Shared Responsibility Payment no longer applies. This means you won’t owe the Shared Responsibility Payment on your federal income tax return.
How do I reconcile health insurance premiums?
To reconcile, you compare two amounts: the premium tax credit you used in advance during the year; and the amount of tax credit you qualify for based on your final income. You’ll use IRS Form 8962 to do this. If you used more premium tax credit than you qualify for, you’ll pay the difference with your federal taxes.
How does Form 1095-A affect my taxes?
The Form 1095-A will tell you the dates of coverage, total amount of the monthly premiums for your insurance plan, the second lowest cost silver plan premium that you may use to determine the amount of your premium tax credit, and amounts of advance payments of the premium tax credit.
What is a form 8962?
Form 8962 is a form you must file with your federal income tax return for a year if you received an advanced premium tax credit through the Marketplace during that year. You must use Form 8962 to reconcile your estimated and actual income for the year.
What happens if I don’t file Form 8962?
What if I file but don’t include Form 8962? For any year when you received advanced premium tax credits, you are required to file a federal income tax return, including Form 8962. If you fail to do this — it is called “ failure to reconcile ” — you may be unable to apply for premium tax credits for the following year.
What happens if I underestimate my income for Obamacare 2022?
You’ll make additional payments on your taxes if you underestimated your income, but still fall within range. Fortunately, subsidy clawback limits apply in 2022 if you got extra subsidies. in 2021 However, your liability is capped between 100% and 400% of the FPL. This cap ranges from $650 to $2,700 based on income.
What is the premium tax credit for 2021?
Under the new law, premium tax credit eligibility for people over 400% of the poverty level is based on keeping the cost of the benchmark plan at no more than 8.5% of household income, and this is retroactive to January 2021.
How is subsidy calculated for Obamacare?
Subsidy eligibility determinations are fairly simple: In a nutshell, you look at your income as a percentage of the poverty level, and then find where that puts you in the sliding scale of the percentage of income you’re expected to pay for the benchmark Silver plan (it’ll be somewhere between 0% and 8.5%, depending on
What Happens if You Overestimate Your ACA Subsidy? – HealthCare.com
One of the strange peculiarities of the Affordable Care Acthealth plans (commonly known as Obamacare or ACA plans) is that most customers do not pay the full retail amount for their coverage. In 2019, 86 percent of those who had an ACA plan were eligible for a subsidy, which is a reduction depending on their income. However, if you exaggerate your income for the purposes of Obamacare, you may be required to repay your government healthcare subsidy. The IRS refers to this as a “clawback,” which is a scary phrase for a cautionary tale of this nature.
Mwa ha ha!
In no way, shape, or form.
Subsidy Overpayment: A Common Problem
The Affordable Care Act nearly guarantees that you will not get a correct subsidy amount. This is due to the fact that your ACA subsidy is decided by your best estimate of your yearly income for the upcoming year. You can make an informed guess based on last year’s salary, but there is no way to accurately predict the amount of money you will earn in the future. After all, no one can predict what will happen in the future. It’s usual for most consumers to overestimate or underestimate their ACApremiumtax credit by a modest amount when calculating their total credit.
- The difference between the two amounts will be reflected in your tax payment or tax refund.
- This is hardly frequent since, with the exception of extremely rare fraud cases, there are no further penalties for overpayment.) When it comes to reconciling subsidies, the Internal Revenue Service will use Form 8962, “Advance Payments of the Premium Tax Credit,” for better or worse results.
- The American Rescue Plan for Fiscal Year 2021 has temporarily changed the structure of how subsidies are computed in order to enhance the Affordable Care Act while also improving access and affordability.
- While the new subsidy expansion is more generous in the short term, it is less generous in the long run.
- Higher-income individuals and families who do not currently qualify for an ACA subsidy will be eligible in 2021 and 2022
- ACA subsidies for lower-income people who already qualify will be increased in 2021 and 2022 to provide even greater premium savings
- ACA subsidies for individuals who receive unemployment benefits in 2021 could result in monthly premiums of $10 or less (or even free)
- Taxpayers who misestimated their income in 2020 will not be required to repay excess premium tax credits
- Taxpayers who misestimated their This is only valid for one year.
Subsidy fixes will become more difficult in the future as the Affordable Care Act’s subsidy standards revert to an income-level-based framework. This is the point at which the IRS clawback might become a concern in the future.
Potential ACA Subsidy Repayment Caps for Fiscal Year 2021:
In 2022, the maximum amount of clawback repayment will be:
|MAGI (Taxable) Income % of Federal Poverty Level||Single Tax Filer||All Other Filers|
|Less Than 200%||$325||$650|
|400%+||Entire Subsidy||Entire Subsidy|
You should anticipate these instructions to be very similar, but not exactly the same, for the taxes you pay in 2022 (Fiscal Year 2021) and beyond if the subsidy obligation is reinstated to its pre-2021 state of affairs. Exceptions to these broad norms can be found in a few specific situations. In the event that you have recently divorced, are filing separate returns, are sharing a plan between families, have received subsidies from two different tax families during the year, have not received a subsidy that you should have received, or have other tax questions, you should carefully review IRSForm 8962 and the accompanying Publication 974 to fully understand your unique situation.
Subsidies and Lawful Immigrants Ineligble for Medicaid
Aliens with family income below 100 percent of the federal poverty level, according to the Internal Revenue Service, are ineligible for Medicaid because of their immigrant status, the IRS states. It is possible that you will qualify for the PTC if your family income is less than 100 percent of the federal poverty level and you fulfill all of the standards listed below:
- You or a member of your tax family who has signed up for a qualifying health plan through the Marketplace
- It is important to note that the enrolled individual is lawfully present in the United States and is not eligible for Medicaid due of his or her citizenship. You otherwise meet the requirements to be a qualified taxpayer (with the exception of the federal poverty line percentage)
What if You Overestimated Your Income for Obamacare Subsidies?
The sooner you apply for Medicaid, the better. If your household makes zero dollars or close to it, you should definitely apply as soon as possible. It is, in essence, a form of free health insurance. If your income qualifies you for Medicaid, don’t try to avoid getting it. Maintaining your ACA coverage is not simply a terrible decision, even if you would have qualified for full ACA payment assistance had you earned a little more, it is also unethical. Fortunately, there are predetermined restrictions on how much you must repay, and you may easily adjust your repayment arrangements at this point.
They can also assist you in switching from Medicare to Medicaid.
These expenses are not included in Medicaid coverage.
Editor’s note: In the near term, the American Relief Plan has revised this regulation to reflect current circumstances.
What if You Underestimated Your Income for Obamacare Subsidies?
Note from the editor: The percentages of FPL have been adjusted to reflect the extension of subsidies under the 2021 American Relief Act, which was made possible by the Kaiser Family Foundation.
More Than 400% FPL
It is possible that you could be required to repay a subsidy if your income is too high. This might happen as early as 2022. (2020 has payback forgiveness). Depending on how much you overestimated, you may be required to repay the whole amount of the subsidy that you got. If you earn nearly 700 percent of the federal poverty threshold or more, depending on your age, it’s critical to consult with an accountant to ensure that your taxes are presented in the most favorable manner possible. If you believe you understated your income, contact your state or federal marketplace to have your subsidy adjusted.
Less Than 400% FPL
Tax payments will be increased if you overestimated your income but still remain within the range of acceptable levels of income.
Fortunately, if you received more subsidies, you will be subject to clawback limits in 2022. in the year 2021 Your obligation, on the other hand, is limited to between 100 percent and 400 percent of the FPL. Depending on your income, this maximum ranges from $650 to $2,700.
If you don’t qualify for subsidies, it’s typically a bad idea to continue with Marketplace ACA coverage. In the event that you earn less than 100 percent of the FPL, there are better options accessible to you. If you earn more over 400 percent of the median income in 2021-2022, you will be able to purchase almost equivalent ACA plans on private exchanges without incurring the additional expense of supporting others. If you get Obamacare subsidies, you must constantly disclose any substantial changes in your income.
Because to the American Relief Plan, persons who experienced financial difficulty in 2020 and require health care coverage should have a better year in 2021 than they had in 2020.
It’s possible that you won’t have to write a check at all.
Take advantage of the Affordable Care Act’s incentives without hesitation.
If my income changes and my premium subsidy is too big, will I have to repay it?
If premium subsidy clients wind up earning more than they planned, they may be required to repay a portion of their subsidy money (but not for 2020, thanks to the American Rescue Plan). | Photograph courtesy of Andrey Popov / stock.adobe.com If my income changes and my premium subsidy becomes too large, what happens? Q. Will I be required to return it?
Obamacare subsidy calculator *
2+Include the ages of any other family members who will be covered. 3 You should include yourself, your spouse, and any children who have been claimed as dependents on your tax return. 4
Modified Adjusted Gross Income (MAGI)
For the vast majority of taxpayers, your MAGI is close to your AGI (Line 7 of your Form 1040 in 2018, and Line 8b in 2019). * This calculator calculates the amount of ACA premium subsidies you may be eligible for based on your household income. Individuals who use our subsidy calculator do not provide any personal information to us, and we do not collect or keep any of that information.
Estimated annual subsidy
To receive an estimate, please fill out the form above. A. Yes, in the broadest sense. However, there was a one-time exemption to this rule for coverage in 2020. The American Rescue Plan (ARP) provided relief from excess premium subsidy repayments, although this assistance was only available for the plan year 2020. Detailed explanations of this are provided at the conclusion of this article. Predicted income for the year ahead is used to calculate monthly premium subsidy amounts (i.e., the advance premium tax credit – APTC – that’s paid directly to your insurer each month to offset the cost of your premium), but your actual income for the year in which you’re receiving subsidized health insurance coverage determines the true amount of your premium tax credit.
- Especially because the tax credits are given directly to the insurance carriers on a monthly basis, this might catch individuals off guard, especially because if the payments are overpaid, they must be repaid by the insureds themselves.
- Families with earnings up to 400 percent of the federal poverty line, on the other hand, are exempt from having to repay any extra subsidies (FPL).
- (Repayment Limitation).
- On a number of occasions in 2017, Republican senators explored legislation that would have abolished the payback caps, thereby mandating that anybody who earned an excessive APTC pay back the entire amount, regardless of his or her financial situation.
Those plans, however, did not become law. There are various situations in which repayment limitations do not apply, including the following:
- People who anticipated having an income below 400 percent of the poverty level (and received premium subsidies during the year based on that projection) but end up with an actual income in excess of 400 percent of the poverty level must reimburse the Internal Revenue Service (IRS) the entire amount of premium subsidies received on their behalf. Excess subsidies will not be required to be returned in 2020, as previously stated. People earning more above 400 percent of the federal poverty threshold are eligible for premium subsidies under the ARP, but only in 2021 and 2022, respectively. The rules would revert to their previous state if future legislation does not extend the exemption beyond 2022. If a household’s income ends up exceeding 400 percent of the poverty level, all premium subsidies must be repaid
- If a person projected an income at or above 100 percent of the poverty level (and received premium subsidies), but ends up with an income below the poverty level (and therefore not eligible for subsidies), none of the subsidy must be repaid. In the instructions for Form 8962, on page 8, in the part regarding Line 6, it is stated that this is correct (Estimated household income at least 100 percent of the federal poverty line). Due to a court decision in 2021, new rules were implemented in 2019 that made it less likely for people with incomes below the poverty level to qualify for premium subsidies based on income projections that are above the poverty level. However, these rules were reversed in 2021, making it more likely for people with low incomes to qualify. Here’s a more in-depth explanation of everything
Is there any help for me if I have to repay premium subsidies?
Excess premium subsidies did not have to be reimbursed for the 2020 plan/tax year because they were not used. However, the IRS stated that they would “consider possible avenues of administrative relief” for tax filers who are struggling to pay back excess APTC, including options such as payment plans and the waiver of interest and penalties for people who must return subsidy over-payments in prior and future years. If you find yourself in a scenario where you must repay a considerable portion of the premium subsidies that you got during the previous year, contact the Internal Revenue Service to see if you can work out a beneficial payment plan/interest agreement with them.
If you have HSA-qualified health coverage during the year, you can continue to make HSA contributions until the end of the tax filing season in the spring after the end of the year.
Your tax adviser can help you determine what makes the most sense in your particular situation, but you may discover that certain pre-tax savings wind up lowering the amount of money you’d otherwise have to pay back to the IRS.
What if you get employer-sponsored health insurance mid-year?
The majority of non-elderly Americans receive their health insurance via their place of employment. Individual health insurance is great for filling in the gaps between jobs, but what happens if you start the year without access to an affordable employer-sponsored health insurance plan and then get hired for a job that provides health coverage in the middle of the year? What happens if you are hired for a job that provides health coverage in the middle of the year? Depending on whether a premium subsidy was provided on your behalf during the months you had individual market coverage, you may be required to refund a portion or the entirety of the subsidy when you submit your tax return.
- It is possible that your total income will wind up being in accordance with the estimate you provided when applying for your subsidy, in which case you will not be required to repay the money.
- The fact that your salary was lower while you were covered under the individual market plan makes no difference whatsoever.
- As of the month in which you become eligible for an affordable health insurance plan via your employer that providesminimum value, you are no longer eligible for premium assistance under the Affordable Health Insurance Plan.
- Finally, if you’re provided health insurance via your employer that you believe is too expensive based on the percentage of the premium you must pay, you can’t just opt out and purchase your own health insurance plan in order to qualify for a subsidy.
Unfortunately, when considering whether an employer-sponsored plan is reasonable, the cost of getting family coverage is not taken into consideration, leaving some families without a viable coverage choice.
How many people have to repay premium subsidies?
With regard to excess subsidy repayments over time, the IRS has published the following information (we’re talking about the plan year in each example, with repayments made the following year when consumers file their tax returns):
- The average amount that had to be repaid was approximately $870, and 60 percent of people who had to pay back excess APTC still received a refund after that excess APTC was subtracted from their initial refund
- In 2015, 3.3 million tax filers who were eligible for APTC were required to repay a portion of the subsidy when they filed their 2015 taxes. For the tax year 2016, 2.8 million taxpayers got extra APTC, totaling $5.8 billion. $2.3 billion of it fell under the subsidy payback caps and had to be reimbursed
- In 2017, 2.7 million tax filers got extra APTC totaling $5.8 billion, resulting in a total of $2.3 billion in repayment obligations. $2.7 billion of it was in excess of the subsidy payback caps and had to be reimbursed
- In 2018, 2.6 million tax filers got extra APTC totaling $5.8 billion, which had to be repaid. A total of $3.2 billion of that fell within the subsidy payback limitations and had to be refunded
Alternatively, about 2.4 million tax filers who were qualified for a premium tax credit in 2015 ended up obtaining all or part of their benefit when they submitted their tax return in 2015. It refers to individuals who either paid the full price for their exchange plan but eventually qualified for a subsidy based on their 2015 income, or individuals who received an APTC that was less than the amount for which they finally qualified. In 2015, an average of $670 in extra premium tax credits was paid out on tax returns, according to the Internal Revenue Service.
According to the IRS, it is extremely rare for consumers to pay the entire amount of their insurance premiums and then wait to collect their full refund on their tax return: Almost everyone who qualifies for a premium tax credit receives at least a portion of it up front, with the remainder being paid directly to their health insurance during the course of the year.
Subsidy repayment amnesty for the 2020 plan year
When looking at a regular year, it is difficult to predict yearly revenue precisely, but the COVID epidemic made it more more difficult in 2020. In order to resolve this, Section 9662 of the ARP stipulates that persons would not be required to return surplus premium subsidies for the year 2020. This was true regardless of whether their total household income surpassed 400 percent of the poverty level (which was the income limit in place to qualify for subsidies in 2020), and it was true regardless of the reason why their income ended up being higher than anticipated in the first place.
The ability to bypass Form 8962 (premium tax credit reconciliation form) was extended to people who would have otherwise had to reimburse some or all of their advance premium tax credits under the previous administration.
Because of her work as an individual health insurancebroker, Louise Norris has been publishing articles about health insurance and health reform since 2006.
State health exchange updates are frequently mentioned by journalists covering health reform, as well as by other specialists in the field of health insurance.
How to reconcile your premium tax credit
It is necessary to “reconcile” your federal taxes if you had a Marketplace plan and made advance payments of the premium tax credit (APTC) to decrease your monthly payment. You can get more information about this at the IRS website. As a result, you’ll be comparing two figures: Any discrepancy between the two amounts will have an impact on your refund or tax liability. How to fill out Form 8962 with information from your 1095-A tax return
|What information do I need from my 1095-A?||Where do I find it on my 1095-A?||Where do I enter iton Form 8962?||See how|
|Enrollment Premiums||Part III: Column AAnnual amount: line 33Monthly amounts: lines 21 — 32||Part II: Column aAnnual amount: line 11Monthly amounts: lines 12 — 23||Quick view|
|Second lowest cost Silver plan (SLCSP) premium||Part III: Column BAnnual amount: line 33Monthly amounts: lines 21 — 32||Part II: Column bAnnual amount: line 11Monthly amounts: lines 12 — 23||Quick view|
|Advance payment of premium tax credit||Part III: Column CAnnual amount: line 33Monthly amounts: lines 21 — 32||Part II: Column fAnnual amount: line 11Monthly amounts: lines 12 — 23||Quick view|
Affordable Care Act Tax Credits: The Pay Back Requirements For Underestimating Annual Income
Whenever you apply for health insurance through your Affordable Care Act (ACA) health insurance exchange (commonly known as “Obamacare”), you must estimate your family’s expected income for the year. The cost of a mid-level Silver ACA plan for you and your family exceeds a specific percentage of your household income, which is determined on a sliding scale, and you may be eligible for a tax credit to assist you in paying your premiums in that case. This premium assistance credit, which may be worth hundreds of dollars each year, can be quite valuable.
- It is detailed on Form 1095-A, Health Insurance Marketplace Statement, which is supplied by your ACA exchange, the amount of credits paid on your behalf to your insurer.
- What happens, though, if it turns out that you grossly miscalculated your yearly earnings?
- Is it necessary to pay back all or a portion of your credit when you submit your taxes for the year?
- The restrictions change depending on the time of the year.
No Payback for 2020
Given the devastation caused by the COVID-19 epidemic, Congress agreed to ease the burden on taxpayers who understated their income for 2020 and obtained bigger premium tax credits than they should have received. Unless you got considerably more premium tax credits than you were entitled to based on your income in 2020, you were not required to pay any portion of them back in 2020. If you look at it from the tax perspective, it’s as if you never received the premium tax credit at all. It doesn’t get much easier or more straightforward than this.
Payback Rules for 2021
In 2021, the repayment obligation will be reinstated. Individuals and families are obliged to spend no more than 8.5 percent of their household income for health insurance under the Affordable Care Act (ACA) starting in 2021. No of how much money they make, they are eligible for a premium tax credit to the extent that the cost of the benchmark silver benchmark plan in their area exceeds 8.5 percent of their family income. The federal government requires those with household earnings less than 400 percent of the federal poverty threshold to pay less than 8.5 percent of their income for health insurance, with the amount varying depending on the family size.
- The amount of money you’ll have to pay back will be determined by your family’s income.
- However, if your income is greater than the median, you’ll be required to repay the full excess credit, which might be a significant amount.
- Unless you pay the amount owing when you submit your taxes, the IRS will take the amount owed from your tax return, if you are eligible.
- If you purchase a silver plan for your family at a cost of $15,000, you will be eligible for a premium tax credit of $6,500.
- Premium tax credits will be provided based on your 2021 income being no more than 133 percent of the federal poverty threshold, regardless of whether or not you received unemployment compensation during any part of the year.
You will not be required to refund any portion of your premium credits, regardless of how high your income in 2021 turns out to be.
Payback Rules for 2022 and Later
The restrictions that were in effect from 2014 to 2019 are slated to be reinstated beginning in 2022. (although this could change if Congress amends the ACA again). This credit is only available to poor and moderate-income individuals whose family income is between 100 percent and 400 percent of the federal poverty threshold, according to these regulations (FPL). In order to qualify for ACA coverage, individuals whose income falls between these restrictions are needed to pay no more than 9.83 percent of their household income, depending on the benchmark silver plan available in their region.
If your income exceeds 400 percent of the federal poverty level and you get premium tax credits, you will be required to repay them in full when you file your taxes for the year in question.
Avoiding Paying Back Your ACA Tax Credits
Reporting any changes in your income to your health exchange during the year is one method to avoid being required to repay all or part of the premium assistance you received under the Affordable Care Act. The exchange may reduce the amount of premium assistance you receive for the remainder of the year if you do not meet the requirements. Another option for avoiding having to repay all or part of your premium assistance is to elect to have all or part of your premium assistance sent to you as a tax refund when you file your tax return, rather than having it paid in advance to your health insurer during the year as a reimbursement for premium assistance.
For further information, contact your state’s health insurance exchange.
Premium Tax Credit: Claiming the Credit and Reconciling Advance Credit Payments
- Payments in advance of the premium tax credit
- Taxation in the year 2020: The requirement to reimburse any excess advance payments of the premium tax credit has been postponed for the time being. In order to claim and reconcile the Credit for tax years other than 2020, you must file a federal tax return. It is possible that you will not get future advance credit payments if you do not file your tax return for tax years other than 2020. Notifying the authorities of any changes in conditions
- This section describes the impact of advance credit payments on your return for tax years other than 2020. In the case of tax years other than 2020, surplus advance credit payments must be repaid. Unemployment Compensation in 2020
- Unemployment Compensation in 2021
- Unemployment Compensation in 2022
- Unemployment Compensation in 2023
Advance payments of the premium tax credit
When you enroll in coverage and apply for financial help, the Marketplace will calculate an estimate of the amount of premium tax credit you will be eligible for for the year in which you are enrolled in coverage. The Marketplace utilizes the information you supply about the following items to produce this estimate:
- The make-up of your household
- Your household’s gross monthly revenue
- Whether or if people you are enrolling are eligible for alternative types of coverage that are not available via the Marketplace
In accordance with the estimate provided by the Marketplace, you have the option of having the entire amount, a portion of it, or none of it paid in advance straight to your insurance provider on your behalf. Known as advance payments of the premium tax credit or advance credit payments, these payments are used to reduce the amount of money you have to pay out of pocket for your monthly premiums. The monthly cost will be due in full if you do not get advance credit payments from your insurance company.
Tax Year 2020: Requirement to repay excess advance payments of the premium tax credit is suspended
For tax year 2020, the ARPA has delayed the need to reimburse excess advance payments of the premium tax credit (also known as excess APTC repayments) to the IRS. The amount by which a taxpayer’s advance credit payments for the year of coverage exceed the amount of premium tax credit that the taxpayer is entitled to receive for the year is known as the taxpayer’s excess APTC. No further action is required if you have already filed your 2020 return and reported excess APTC or paid an excess APTC refund.
The IRS will lower the excess APTC payback amount to zero, and the taxpayer will not be required to take any additional action.
If a taxpayer receives a letter stating that a Form 8962 for tax year 2020 is missing, the taxpayer should reject the letter unless they have an excess APTC for 2020.
Listed below are the steps to take if you have not yet submitted your 2020 income tax return:
- For 2020, you are not required to record any excess APTC or submit Form 8962, Premium Tax Credit, because you do not have any excess APTC to report on your 2020 tax return. To claim a net Premium Tax Credit for 2020, you must complete Form 8962, Premium Tax Credit (PTC)
- Otherwise, you will not be eligible for a net Premium Tax Credit.
For further information, please check the Premium Tax Credit for the Tax Year 2020:
- Frequently Asked Questions
- Fact Sheet
- News Release
- And more resources.
Filing a federal tax return to claim and reconcile the credit for tax years other than 2020
For tax years other than 2020, if advance payments of the premium tax credit were made for you or someone else in your tax family (your tax family is comprised of every individual you claim on your tax return – yourself, your spouse if you are filing jointly, and your dependents), you must completeForm 8962, Premium Tax Credit (PTC)PDFand attach it to your return. For tax years other than 2020, if advance payments of the premium tax credit were made for you or someone else in your tax family ( In the mail, you will get Form 1095-A, Health Insurance Marketplace Statement, which will provide you with information on your health-care coverage and other related matters.
Form 1095-A is available online.
For this purpose, even if you are not otherwise obligated to do so, you must submit an income tax return with the Internal Revenue Service.
For tax years other than 2020, you must file a tax return if you meet any of the following criteria:
- You have applied for and received the premium tax credit. Advance credit payments were made to your health insurance on your behalf or on behalf of a member of your tax family who was not present. For the purposes of the premium tax credit, your tax family consists of all of the people you list on your tax return, including yourself, your spouse if you are filing jointly, and any dependents. The advance credit payments were made for someone you notified the Marketplace you would include in your tax family for the year of coverage, even if that individual was not included in any tax families at the time of the payment
You may find detailed instructions on how to fill out Form 8962 in the Instructions for Form 8962.
Additional guidelines for taxpayers in extraordinary circumstances can be found in Publication 974.
Failing to file your tax return for tax years other than 2020 may prevent future advance credit payments
It is possible that you may not be eligible for advance credit payments in future years if advance credit payments are made for you or a person in your tax family for coverage in a year other than 2020 and you do not file a tax return. This implies that you will be liable for the entire amount of your monthly premiums until they are paid off. In addition, you may be required to reimburse part or all of the advance credit payments that were paid on your behalf or on behalf of a member of your tax family.
Reporting changes in circumstances
If you purchased health insurance coverage through the Marketplace and elected to receive the benefit of advance payments of the premium tax credit, it is critical that you notify the Marketplace of certain life events that occur throughout the year – these events are referred to as changes in circumstances – as soon as they occur. The amount of your advance credit payments may exceed the amount of premium tax credits available to you in a given year if your household income increases or the size of your household decreases from the figures you provided to the Marketplace – for example, because a son or daughter who you thought would be your dependent will not be your dependent for the coverage year – If you notify the Marketplace of the change, the Marketplace may be able to reduce the amount of your advance credit payments.
Unless you notify the IRS of the change, and your advance credit payments are greater than the premium tax credit you are entitled to, you will have to lower your refund or raise the amount of tax you owe when you submit your federal tax return to account for the difference.
This may result in a reduction in the amount of money you pay in monthly premiums.
Alterations to your personal situation that may have an impact on the amount of your real premium tax credit include the following:
- Increases or losses in your household’s income are possible outcomes. The following are examples of events that might result in a considerable rise in household income:
- Social Security benefits, including Social Security Disability Insurance payments, are paid in lump sums. lump-sum taxable withdrawals from an individual retirement account or other type of retirement plan. granting debt remission or cancellation, for example, in the case of credit card debt discharge
- Whether to marry or divorce
- Having a kid by birth or adoption
- Other changes that may have an impact on the makeup of your tax family, which includes you, your spouse if you are filing jointly, and any dependents you have
- It is possible to gain or lose eligibility for health insurance coverage provided by the government or an employer. Relocating to a different location
Visit HealthCare.gov to see the complete list of changes that need be reported. You can use thePremium Tax Credit Change Estimator to figure out what impact changes in your circumstances may have on your ability to claim the maximum amount of premium tax credit available to you.
How advance credit payments affect your refund
If the premium tax credit computed on your return is more than the advance credit payments made on your behalf throughout the year, the difference will either raise your refund or decrease the amount of tax you owe as a result of the difference. This will be recorded on Schedule 3 of Form 1040, Income Tax Return. With respect to tax years other than 2020, if you have made advance credit payments that are greater than the amount of premium tax credit you are entitled to receive, this is referred to as excess APTC.
You will report all or part of this amount on Form 1040, Schedule 2, and it will be added to your tax liability. Either a reduced refund or an increased balance owed will arise as a result of this.
Repaying excess advance credit payments for tax years other than 2020
Tax year 2020 will be exempt from the obligation to raise tax liability by the amount of any excess advance credit payments, whether in full or in part. In other years, the amount of excess APTC that increases your tax liability may be limited if your household income is less than 400 percent of the applicable federal poverty line; however, if your household income is 400 percent or more of the applicable federal poverty line, you will be required to repay the entire amount of excess APTC that increases your tax liability.
It is important to note that if you are married filing separately, the repayment limitation for taxpayers who have household incomes below 400 percent of the appropriate federal poverty level applies to both spouses individually, depending upon the household income reported on each return.
This form details the amount of premiums you and your family will pay for your health insurance coverage.
Health Insurance Marketplace Statements provides further information on Form 1095-A.
2020 Unemployment Compensation
As a result of ARPA, qualifying taxpayers can deduct up to $10,200 in unemployment compensation off their 2020 Form 1040, 1040-SR, or 1040-NR. After ARPA was enacted in July 2021, the Internal Revenue Service (IRS) began reviewing tax returns filed previous to the implementation of ARPA to identify tax returns on which the taxpayer had reported both excludible unemployment compensation and excess APTC repayments. Customers received letters from the IRS, generally within 30 days of the adjustment, informing them of the type of adjustment that had been made (such as a refund, payment of an IRS debt payment, or payment offset for other authorized debts), as well as the amount of the adjustment, as a result of the adjustment.
Individuals who are now entitled for deductions or credits that were not previously claimed on their initial return should submit a Form 1040-X, Amended U.S.
Individual Income Tax Return, for tax year 2020 if they were previously ineligible due to the omitted unemployment compensation. For further information, go to the 2020 Unemployment Compensation Exclusion FAQs —Topic D: Amended Return (Form 1040-X) for more.
2021 Unemployment Compensation
You and your spouse (if you are filing a joint return) are deemed to have earned no more than 133 percent of the federal poverty level for your family size if you received, or were eligible for, unemployment benefits for any week beginning during 2021. If you or your spouse (if you are submitting a joint return) received, or were approved to receive, unemployment compensation for any week commencing during the year 2021, check the box on line A, above Part I of 2021 Form 8962, which is located above Part I.
More information may be found in Publication 974PDF.
The Premium Tax Credit – The Basics
On March 11, 2021, Congress passed the American Rescue Plan Act of 2021 (ARPA), which temporarily suspended the requirement to repay excess advance payments of the premium tax credit (excess APTC), which is the amount by which your advance credit payments for the year exceed your premium tax credit for the year. This suspension will last until the end of the tax year 2020. No further action is required if you have already filed your 2020 return and reported excess APTC or paid an excess APTC refund.
The IRS will lower the excess APTC payback amount to zero, and the taxpayer will not be required to take any additional action.
If a taxpayer receives a letter stating that a Form 8962 is missing, the taxpayer should reject the notice unless they have an excess APTC for 2020.
Listed below are the steps to take if you have not yet submitted your 2020 income tax return:
- If you have an excess APTC for 2020, you are not required to record it on your 2020 tax return or submit Form 8962, Premium Tax Credit (PTC)
- But, if you have an excess APTC for 2019, you are obliged to declare it on your 2020 tax return. If you want to claim a net premium tax credit for 2020, you must file Form 8962, Premium Tax Credit (PTC)
- Otherwise, you must file Form 8962, Premium Tax Credit (PTC).
For further information, please check the Premium Tax Credit for the Tax Year 2020:
- Frequently Asked Questions
- Fact Sheet
- News Release
- And more resources.
When filing your federal income tax return for tax years other than 2020, if you get the benefit of advance credit payments in any amount, or if you want to claim the premium tax credit, you must also file Form 8962, Premium Tax Credit (PTC), which must be attached to your return. On Form 8962, you claim the premium tax credit and reconcile the credit with the amount of advance credit payments you made for the year in order to calculate the credit. When filing a return for any tax year other than 2020, you must include a reconciliation of the credit with the amount of your advance credit payments, even if you aren’t normally obliged to do so.
The article Premium Tax Credit: Claiming the Credit and Reconciling Advance Credit Payments provides detailed instructions on how to file a return in order to claim and reconcile the credit.
Filing a tax return online is the quickest and most accurate method of submitting a complete and correct tax return. Free volunteer aid, IRS Free File, commercial software, and professional assistance are all available as electronic filing choices.
How a Health Insurance Subsidy Could Cost You Big Time
For example, if you purchase health insurance through your state’s health insurance exchange and a premium subsidy (also known as an advance premium tax credit, or APTC) is paid to you on your behalf in order to offset the monthly premium amount you must pay, it’s important to understand how this is reconciled on your tax return. If your actual income for the year turns out to be higher than you anticipated when you joined, you may be required to repay a portion or the entire subsidy you received for your health insurance premiums when you file your taxes.
It is explained in detail in this post how it all works and what you need to know.
Actual vs. Estimated Income
The amount of premium tax credit health insurance subsidy you were awarded when you first enrolled in your health plan (or when you reported a change in circumstances to the exchange in the middle of the year) is based on an estimate of your income for the year in which you are receiving the subsidy (or when you reported a change in circumstances to the exchange in the middle of the year). Income is computed using a modified adjusted gross income formula that is particular to the Affordable Care Act.
However, if you receive a promotion, a bonus, an inheritance, or any other windfall, or if your income changes from year to year, you may unintentionally underestimate your income and end up with a lower income.
Whatever the reason, if you understate the amount of your income when you enroll in health insurance, the health insurance subsidy that is paid on your behalf throughout the year may be greater than the actual amount you are supposed to receive, which will not be determined until after you file your tax return.
Advanced Payment Option Raises Risk
The premium tax credit health insurance subsidy is, as its name implies, a tax credit that is awarded to you when you pay your taxes at the end of the year. However, because it is difficult to pay your health insurance premium this month with monies that will not be received until next spring when you file your taxes, the Affordable Care Act permits you to pay the tax credit in advance. If you select for the advanced payment option, the subsidy money is paid immediately to your health insurance provider each month, saving you time and money.
Because the advanced payment option makes health insurance more affordable right away, you don’t have to wait until tax season to get coverage.
For those who choose the advanced payment option, if they understate their income on their subsidy application, they risk receiving a full year’s worth of subsidies based on an erroneous income estimate.
Having to Pay the Subsidy Back
When you get a health insurance subsidy through the Premium Tax Credit, a procedure known as reconciliation is required as part of the preparation of your federal income tax return. The amount of subsidies the government actually paid your health insurance provider is compared to the amount the government should have paid based on your real income for the year throughout this procedure. It is your responsibility to “reconcile” the two sums when you submit your taxes, if they are different.
Overestimating Your Income
The subsidy that the government paid in advance to your insurance may have been less than it should have been if you overestimated your income for the year. There is no harm and no foul. The difference will either be applied to your tax refund or used to reduce the amount of taxes you owe the government. Note that if you overestimated your income and then find that your actual income is less than the federal poverty level (ie, too low to be eligible for any government assistance), you won’t be required to reimburse the IRS for your subsidy, but you won’t be eligible for any additional subsidies when you file your taxes.
As is always the case, you will be able to claim the premium tax credit when you submit your next tax return, if you have income that qualifies you for a subsidy that year.
Underestimating Your Income
The government may have provided a higher subsidy to your insurer than it should have if you overestimated your income for the year because you underestimated your income for the year. When you submit your taxes, you’ll have to make up for the difference by paying back a portion or the entire amount of the excess. You might not think it’s that big of a concern if the amount you have to pay back is only $15. For example, if the amount is $1,500 and you must pay it on April 15 in an unexpected manner, it is a lot greater concern.
This was the case if the household’s income increased by more than 400 percent from the previous year’s poverty threshold, regardless of whether the rise was the result of an income gain or an unexpected windfall at the end of the year.
To their great relief, the American Rescue Plan has avoided the so-called “subsidy cliff” for the years 2020 and 2021.
Furthermore, because the COVID pandemic has made it difficult to predict income amounts for 2020, the American Rescue Plan ensures that marketplace enrollees will not be required to repay any excess APTC from 2020, regardless of the amount or reason for which they would have been required to do so otherwise.
Cap for Subsidy Repayment
It’s possible that you overestimated your income for the year, in which case the government’s subsidy to your insurance was more than it should have been. When it comes time to file your taxes, you’ll have to make up for the difference by paying back part or all of the excess. You might not think it’s that big of a concern if the amount you have to pay back is just $15. For example, if the amount is $1,500 and you must pay it on April 15 in an unexpected manner, it is a lot more serious matter.
A household’s income exceeded 400 percent of the poverty line the previous year, even whether this occurred as a result of a raise in income or an unexpected windfall at the end of the fiscal year, according to the study.
To their great relief, the American Rescue Plan has avoided the so-called “subsidy cliff” for the years 2020 and 2022.
Furthermore, because the COVID pandemic has made it difficult to predict income amounts for 2020, the American Rescue Plan ensures that marketplace enrollees will not be required to repay any excess APTC from 2020, regardless of the amount or reason for which they would otherwise have been required to do so.
IRA Contributions Might Help
The term “income” should be understood to refer to Modified Adjusted Gross Income (MAGI), and the computation for this is unique to the Affordable Care Act; it is not the same as generic MAGI calculations used for other tax purposes. So if your income is projected to be higher than you anticipated, remember that making a contribution to a traditional IRA (and/or an HSA if you have HSA-qualified health insurance) will lower your modified adjusted gross income (MAGI) and help you limit the amount of your premium subsidy that must be repaid to the Internal Revenue Service.