Alyssa Lane
The Premium Tax Credit (PTC) is a refundable tax credit that helps eligible individuals and families with low or moderate incomes afford health insurance purchased through the Health Insurance Marketplace. The size of the PTC is based on a sliding scale, meaning those with lower incomes receive a larger credit. When enrolling in Marketplace insurance, individuals can choose to have the PTC paid to their insurance company in advance to lower their monthly premiums, or they can receive the full credit when filing their tax return. The PTC is reconciled when filing federal taxes, which involves comparing the amount of the PTC used during the year with the amount the individual actually qualifies for based on their final income for the year. This reconciliation determines whether an individual will receive a refund or owe additional taxes.
| Characteristics | Values |
|---|---|
| What is a Premium Tax Credit? | A refundable tax credit designed to help eligible individuals and families with low or moderate income afford health insurance purchased through the Health Insurance Marketplace. |
| Who is eligible for a Premium Tax Credit? | Eligibility is based on income level and household size. |
| How is eligibility determined? | When you apply for Marketplace insurance, you will find out if you qualify for a PTC, including the estimated amount, which is then paid to the insurance provider you choose. |
| What happens if my income changes? | You should report any changes in family size or household income to the Marketplace as soon as possible to ensure you receive the correct tax credit. |
| How do I claim the Premium Tax Credit? | To get this credit, you must meet certain requirements and file a tax return with Form 8962, Premium Tax Credit (PTC). |
| What is Form 8962? | Form 8962 is used to claim the Premium Tax Credit. You must complete all sections of the form and include it with your federal tax return. |
| What is Form 1095-A? | Form 1095-A is provided by your Marketplace if you or your dependents had coverage through the Marketplace. Use the information on this form to claim the credit or reconcile advance credit payments on Form 8962. |
| How does the Premium Tax Credit affect my refund? | If your actual allowable credit is more than your advance credit payments, the difference will be added to your refund. If your actual allowable credit is less than your advance credit payments, the difference will be subtracted from your refund. |
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What You'll Learn
How does the premium tax credit affect my refund?
The Premium Tax Credit (PTC) is a refundable tax credit that helps eligible individuals and families with low or moderate incomes afford health insurance purchased through the Health Insurance Marketplace. The size of the PTC is based on a sliding scale, meaning those with lower incomes receive a larger credit to help cover the cost of their insurance.
When enrolling in Marketplace insurance, you can choose to have the Marketplace compute an estimated credit that is paid to your insurance company to lower your monthly premiums (advance payments of the PTC, or APTC). Alternatively, you can opt to receive the full benefit of the credit when filing your tax return for the year. If you choose to receive advance payments, you will need to reconcile the amount paid in advance with the actual credit computed when you file your tax return.
If your actual allowable credit on your return is less than your advance credit payments, the difference will be subtracted from your refund or added to your balance due for years other than 2020. If your actual allowable credit is more than your advance credit payments, the difference will be added to your refund or subtracted from your balance due.
For tax years other than 2020, if you receive the benefit of advance credit payments in any amount, or if you plan to claim the PTC, you must file a federal income tax return and attach Form 8962, Premium Tax Credit (PTC), to your return. You claim the PTC and reconcile the credit with the amount of your advance credit payments for the year on Form 8962.
It is important to promptly report any changes to your household, income, or family size, as this may affect the amount of your PTC and, consequently, your tax refund.
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How does the American Rescue Plan Act affect my refund?
The American Rescue Plan Act of 2021 (ARPA) was signed into law by President Biden on March 11, 2021. The plan includes relief payments and tax provisions that will impact 2020 and 2021 returns. Here are some ways in which the American Rescue Plan Act may affect your refund:
Unemployment Benefits
The American Rescue Plan Act provides tax relief for Americans who lost their jobs during the COVID-19 pandemic and claimed unemployment benefits in 2020. The Act exempts from federal income tax up to $10,200 of unemployment benefits received in 2020 by middle- and lower-income taxpayers with an adjusted gross income of less than $150,000. This tax break will prevent an unexpected tax bill for taxpayers who received unemployment benefits.
Child Tax Credit
The American Rescue Plan Act increases the Child Tax Credit amount and expands the scope of eligibility. The credit amount has been increased from $2,000 to $3,600 for children under age 6, and $3,000 for other children under age 18. The credit’s scope has been expanded to include children 17 years old and younger, as opposed to the previous limit of 16 years old. The credit is now fully refundable, and individuals eligible for a 2021 Child Tax Credit will receive advance payments from July 1 to December 31, 2021. This change will provide immediate financial assistance to struggling families.
Earned Income Tax Credit (EITC)
The American Rescue Plan Act allows taxpayers who claimed the Earned Income Tax Credit (EITC) to adjust their returns. Due to the exclusion changing the income level, some taxpayers may now be eligible for an increase in the EITC amount, resulting in a larger refund. However, taxpayers who did not originally claim the EITC but are now eligible due to the exclusion changing their income will need to file an amended return.
Recovery Rebate Credit
The American Rescue Plan Act provides a third round of economic impact payments in the form of a Recovery Rebate Credit. Qualifying individuals will receive a payment of $1,400 ($2,800 for married taxpayers filing jointly), plus $1,400 for each qualified dependent. This credit will be included in the 2021 tax return.
Paid Leave Credits
The American Rescue Plan Act includes provisions for paid leave credits, compensating employers and self-employed individuals for coronavirus-related paid sick leave and family and medical leave. The act increases the limit on the credit for paid family leave to $12,000 and allows for leave due to COVID-19 vaccination. The paid leave credits are expanded to include 501(c)(1) governmental organizations.
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How do advance credit payments affect my refund?
Advance credit payments are amounts paid to your insurance company on your behalf to lower the out-of-pocket cost for your health insurance premiums. When you enrol in Marketplace insurance, you can choose to have the Marketplace compute an estimated credit that is paid to your insurance company to lower what you pay for your monthly premiums (advance payments of the Premium Tax Credit, or APTC).
If your actual allowable credit is more than your advance credit payments, the difference will be added to your refund or subtracted from your balance due. However, if your actual allowable credit on your return is less than your advance credit payments, the difference, subject to certain repayment caps, will be subtracted from your refund or added to your balance due 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, you must complete Form 8962, Premium Tax Credit (PTC) and attach it to your return. You will receive Form 1095-A, Health Insurance Marketplace Statement, which provides you with information about your health care coverage. Use the information from Form 1095-A to complete Form 8962 to reconcile your advance payments of the premium tax credit with the premium tax credit you are allowed on your tax return. Filing your return without reconciling your advance credit payments will delay your refund and may affect your eligibility for future advance credit payments.
The Premium Tax Credit is a refundable tax credit designed to help eligible individuals and families with low or moderate incomes afford health insurance purchased through the Health Insurance Marketplace, also known as the Exchange. The size of your Premium Tax Credit is based on a sliding scale. Those who have a lower income get a larger credit to help cover the cost of their insurance.
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How does my income affect my refund?
A tax refund is a reimbursement made to a taxpayer who has overpaid their taxes for the year. This may be due to having too much withheld from their paychecks. A federal tax refund is not considered income, so it does not need to be entered on a federal tax return.
However, a state tax refund may be considered income on a federal tax return if you itemized deductions in the year of the tax refund. This means that if you deducted state and local income taxes, your state refund is taxable. If you deducted sales taxes instead, your state refund is not taxable.
The amount of your refund may also be affected by your eligibility for certain tax credits, such as the Premium Tax Credit (PTC). The PTC is a refundable credit that helps eligible individuals and families with low or moderate incomes afford health insurance purchased through the Health Insurance Marketplace. The size of the PTC is based on a sliding scale, meaning that those with lower incomes receive a larger credit. If you benefit from advance payments of the PTC, you must report any life changes to the Marketplace as they happen, as changes in your income may affect the amount of your credit and your tax refund.
For example, if you receive advance credit payments but your actual allowable credit is less than the advance payments, the difference will be subtracted from your refund. On the other hand, if your actual allowable credit is more than your advance payments, the difference will be added to your refund.
Overall, while your income may not directly affect your refund, it can impact your eligibility for certain tax credits and deductions, which in turn can affect the amount of your refund.
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How do I claim the premium tax credit?
The Premium Tax Credit (PTC) is a refundable credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace. The size of your Premium Tax Credit is based on a sliding scale, with generally larger credits available to those with lower household incomes.
To be eligible for the PTC, you must meet the following requirements:
- Have household income that falls within a certain range.
- Do not file a tax return using the filing status of 'Married Filing Separately'. An exception to this rule allows certain victims of domestic abuse and spousal abandonment to claim the credit using 'Married Filing Separately' status.
- Cannot be claimed as a dependent by another person.
- 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.
If you meet the above requirements, you can claim the PTC by filing Form 8962, Premium Tax Credit (PTC), with your federal income tax return. You can choose to have the Marketplace compute an estimated credit that is paid to your insurance company to lower what you pay for your monthly premiums (advance payments of the PTC, or APTC). If you choose to receive advance payments, you will be required to file Form 8962 with your income tax return to reconcile the amount of advance payments with the PTC that you may claim based on your actual household income and family size.
It is important to report any life changes to the Marketplace as they happen throughout the year, as changes to your household, income, or family size may affect the amount of your PTC. These changes can alter your tax refund or cause you to owe tax.
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Frequently asked questions
The PTC is a refundable tax credit that helps eligible individuals and families with low or moderate incomes afford health insurance purchased through the Health Insurance Marketplace.
To be eligible for the PTC, your estimated income must fall between 100% and 400% of the federal poverty level for a household of your size. You can use Form 8962 to determine your eligibility for the PTC.
You can receive the PTC before you file your return by enrolling in a Marketplace plan and estimating your expected income for the year. You can also claim the PTC after filing your tax return with your actual income.
