Premium Tax Credit and
Marketplace Clients
Kris Ashley
Internal Revenue Service
Stakeholder Partnership Education and Communication
(SPEC)
September, 2014
What is the Premium Tax
Credit?
• Refundable tax credit
• To help eligible individuals and families
pay for health insurance
• Two payment options:
• Get it Now – advance credit payments
• Get it Later – without advance credit
payments
Premium Tax Credit
Taxpayers may be eligible for the credit if they:
• Are eligible for and have purchased and paid for
health insurance through the Marketplace;
• Do not file a Married Filing Separately tax return
(except certain victims of domestic abuse);
• “Household income” is at least 100% and no
more than 400% of the Federal Poverty Line; and
• Cannot be claimed as a dependent by another
person.
Advanced Premium Tax
Credit
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“Get it Now” option
Monthly amount, based on:
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taxpayer’s estimated number of dependents
taxpayer’s estimate of household income
Second-lowest cost silver plan premium
Paid directly to insurer
A tax return must be filed to reconcile
estimate with actual income and family size.
Differences between advance credit payments
and the credit are likely.
Tax Terminology….
Filing Status
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Single – not legally married on Dec. 31 of the
tax year
Married Filing Jointly – legally married on Dec.
31; includes taxpayers whose spouse passed
away after the start of the tax year.
Married Filing Separately – legally married but
doesn’t want to file joint
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If MFS, then NOT eligible for Premium Tax Credit
unless qualified for an exception as a victim of
domestic violence
Filing Status
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Head of Household
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Unmarried (or “considered unmarried”)
Paid more than ½ the cost of keeping up the home
where taxpayer lived with a qualifying person for more than ½
the year (exception if the qualifying person is a parent)
Qualifying person can be child, or a close relative that is also
claimed as a dependent.
A married taxpayer can be “considered unmarried” for
Head of Household if:
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Lived apart from spouse for the entire last 6 months of the year
Qualifying person must be child or step-child taxpayer can claim
as dependent
Filing Status
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Qualifying Widower
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Spouse died in 2012 or 2013 (not 2014)
Paid more than ½ the cost of keeping up
the home
where TP lived with a dependent child or
stepchild for more than ½ the year AND
Not remarried
Who is the “tax family”?
A tax family includes the individuals for whom the
taxpayer claims a personal exemption deduction on the
return, including:
• the taxpayer
• spouse
• and any dependents.
Tax family - Who is a
dependent?
To be a dependent:
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The taxpayer claiming the dependent cannot be a
dependent on another TP’s return.
A dependent cannot file a joint return unless no tax
liability would exist for either spouse on separate
returns.
Dependent must be U.S. citizen, U.S. resident alien,
U.S. national, or a resident of Canada or Mexico, for
some part of the year.
A dependent must be either a qualifying child or
qualifying relative.
Qualifying Child Dependent
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Relationship Test – Child, brother or sister (or a
descendant of one of these), or a foster child
placed by an authorized agency
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Residency Test – Child must have lived with TP
for more than half of tax year
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Age Test – under 19, full-time student under 24,
or permanently disabled at any age
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Support Test – dependent cannot provide more
than ½ of own support
Qualifying Relative Dependent
Not a Qualifying Child
• Member of the TP’s Household for all
year or close family relationship (closer
than cousin)
• Gross Income Test - less than $3950 for
2014
• Support Test – TP must have provided
more than ½ of dependent’s total support
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Need help figuring out
dependent or filing status?
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Use the “Interactive Tax Assistant” at
http://www.irs.gov/uac/Interactive-TaxAssistant-(ITA)-1
Or go to www.irs.gov and search on
“ITA” or “interactive”
Household Income
Modified Adjusted Gross Income (MAGI) = total of:
Adjusted Gross Income (AGI) – Form 1040, line 37
+ Tax Exempt Interest – Form 1040, line 8b
+ Foreign Earned Income Exclusion and Housing
Deduction (Form 2555 or Form 2555-EZ)
+ Non-Taxable Social Security Benefits (difference
between Form 1040, line 20a and line 20b)
Household income = combined MAGI of all members of the
tax family with a filing requirement
Who has a Filing
Requirement?
If your filing status is…
Single
Married Filing Jointly
Married Filing Separately
Head of Household
Qualifying Widow(er)
THEN file a return if
AND at the end of 2014 you your gross income was
were
at least…
under 65
65 or older
under 65 (both spouses)
65 or older (one spouse)
65 or older (both spouses)
any age
under 65
65 or older
under 65
65 or older
$10,150
$11,700
$20,300
$21,500
$22,700
$3,950
$13,050
$14,600
$16,350
$17,550
Dependents with more than $1,000 in unearned income must file
a return – this year, all dependents receiving a PFD will have a
filing requirement.
Advanced Premium Tax
Credit
During enrollment through the Marketplace, the
Marketplace will estimate the amount of the premium tax
credit you will be able to claim on your tax return.
If you are eligible for the credit, you can choose to:
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Get It Now: have some or all of the estimated credit paid in
advance directly to your insurance company to lower what you pay
out-of-pocket for your monthly premiums; or
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Get It Later: wait to get all of the credit when you file your tax
return.
Calculating the Premium
Tax Credit
To calculate the PTC, you need to know:
• The size of the tax family
• Household Income of the tax family
• Second Lowest Cost Silver Plan (SLCSP or
benchmark) for the covered individuals – might
change from month to month
• SLCSP is provided to the taxpayer on Form 1095-A
It is important to note that the calculation of advance payments of
PTC is based on estimated income; however, final eligibility for
the PTC is calculated with the actual income on the Form 1040.
Reconciling the Credit on
the Federal Tax Return
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Consumer must file a tax return and complete
Form 8962.
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Form 8962 calculates the credit based on actual
household income and family size from the tax
return
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If TP chose to “get it later”: The full amount
of the premium tax credit is claimed on the tax
return. This will either increase the refund or
lower the balance due.
Reconciling the Credit on
the Federal Tax Return
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If TP chose to “get it now”: total advance payments
will be subtracted from the amount of the Premium Tax
Credit calculated on the tax return.
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If the actual Premium Tax Credit is more than the advance payments, the
difference will reduce the amount owed on the return, or increase the
refund.
If the advance credit payments are more than the Premium Tax Credit,
the difference increases the amount owed on the return, or decreases the
refund.
The repayment of excess Advanced Premium Tax Credit is
limited for consumers who income is below 400% of
Federal Poverty Level.
Reconciling the Credit on
the Federal Tax Return
Form 8962, page 2 allows for special calculations
for:
• allocating shared policies
• people who married during the year
People who divorced during the year may agree to
allocate, but must use the same proportion for the
benchmark plan, premium amount, and advance
credit.
• If they can’t agree – split 50/50
Other situations…
For purposes of the credit, premiums paid
by someone else are treated as having
been paid by the taxpayer
“Changes in Circumstance”
Taxpayers should alert the Marketplace about
any change in circumstance that could affect
the Premium Tax Credit:
• Change in income
• Change in family size
• Change in address
For example …
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Mary is 26, unmarried, and lives in Anchorage.
Her two young nephews live with her, and she will
claim them as dependents. They are eligible for Denali
KidCare.
She estimated her household income for 2014 would
be $30,000 (123% FPL for a family of 3)
She qualifies for $296/month Advanced Premium Tax
Credit
Her silver plan premium is $305/month, before the
credit. She chose to “Get it Now”, so she pays only
$9/month out of pocket after the APTC.
Now it’s tax time for Mary…
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Mary has $29,400 of wages plus an $1,800 PFD.
Both kids received the PFD, and had no other
income.
Her actual household income is $33,000 (135%
FPL)
Her Form 1095-A says:
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Her annual premium cost was $3,660;
The benchmark premium (SLCSP) was $4,164; and
Her Advanced Premium Tax Credit amount is $3,552.
Tax time for Mary …
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Based on her actual income of $33,000 she’s
entitled to a Premium Tax Credit of $3,091.
Mary has $461 “excess advance premium tax
credit”
($3,552 – $3,091 = $461)
Because her Household Income is less than 200%
of FPL, her repayment is limited to $300
The $300 excess PTC must be repaid with her tax
return, reducing her refund or creating a balance
due.
Things to keep in mind
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Tell the Marketplace about any changes to
income and family size (handouts)
Don’t forget the PFD for everyone when
estimating household income!
Form 1095-A and Exemption Certificate
Numbers will be needed for the tax return.
A tax return must be filed if the Advanced
Premium Tax Credit is received
Free tax help is available
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Call 2-1-1 to find the closest volunteer site
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Contact Alaska Business Development
Center at 1-800-478-3474
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Aleutians
Interior
Pribilofs
Yukon Delta
* Bering Strait
* Kodiak
* Southeast
* Bristol Bay
* North Slope
* Western
Go to www.myfreetaxes.com/alaska or
www.irs.gov/freefile
Questions?
Thanks for having me!