The Premium Tax Credit 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, the Taxpayer must meet certain requirements and file a tax return.
When an individual applies for assistance to help pay the premiums for health coverage through the Marketplace, the Marketplace will estimate the amount of the premium tax credit that the individual may be able to claim for the tax year using information the individual provides about their family composition, their projected household income, and whether those that are enrolling for coverage are eligible for other non-Marketplace coverage.
Based on the estimate from the Marketplace, the individual can choose to have all, some, or none of their estimated credit paid in advance directly to their insurance company on their behalf to lower what the individual pays out-of-pocket for their monthly premiums. These payments are called Advance Payments of the Premium Tax Credit or advance credit payments. If the individual does not get advance credit payments, they are responsible for paying the full monthly premium.
If the individual received the benefit of advance credit payments, that individual is required to file a tax return to reconcile the amount of advance credit payments made on their behalf with the amount of their actual Premium Tax Credit. That individual must file an income tax return for this purpose even if they are otherwise not required to file a return.
If the individual chooses not to get advance credit payments, that individual can claim the full benefit of the Premium Tax Credit that they are allowed when they file their tax return. This will increase their refund or lower the amount of tax that they would otherwise owe.
An individual is eligible for the Premium Tax Credit if they meet all of the following requirements:
- Have household income that falls within a certain range. For purposes of the Premium Tax Credit, household income is the modified adjusted gross income of the taxpayer and their spouse (if filing a joint return), plus the modified adjusted gross income of each individual in their tax family whom they can claim as a dependent and who is required to file an income tax return because his or her income meets the income tax return filing threshold. Household income does not include the modified adjusted gross income of those individuals whom the taxpayer claims as dependents and who are filing a tax return only to claim a refund of withheld income tax or estimated tax. For purposes of the Premium Tax Credit, modified adjusted gross income is the adjusted gross income on the tax return plus certain income that is not subject to tax (foreign earned income, tax-exempt interest, and the portion of social security benefits that is not taxable). A taxpayer who includes the gross income of a dependent child on the taxpayer’s tax return must also include the child’s tax-exempt interest and the portion of the child’s social security benefits that is not taxable. (Note: This definition of household income is not the same as the definition of household income used to determine eligibility for Filing Exemptions if the taxpayer has a Responsibility Payment (Form 8965).)
- Not filing a Married Filing Separately tax return, unless they meet certain criteria which allows certain victims of domestic abuse and spousal abandonment to claim the premium tax credit using Married Filing Separately.
- Cannot be claimed as a dependent by another person.
- In the same month – a coverage month – the Taxpayer, or a family member has to meet the following:
- Enroll in coverage through a Health Insurance Marketplace.
- 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.
Any Taxpayer claiming the Premium Tax Credit will receive a Form 1095-A from the federal Marketplace or state health care exchange after the end of the year and will have to include Form 8962 in their tax return.
The Premium Tax Credit is not allowed for the coverage of an individual who is not lawfully present in the United States, and all Advanced Premium Tax Credit paid to an individual not lawfully present who enrolls in a qualified health plan through either the federal marketplace or a state health care exchange must be repaid.