Orlando Harmon
The Premium Tax Credit is a refundable tax credit that helps eligible individuals and families afford health insurance purchased through the Health Insurance Marketplace. The size of the Premium Tax Credit is based on a sliding scale, with lower-income earners receiving larger credits to help cover the cost of their insurance. To claim the Premium Tax Credit, individuals must meet certain requirements and file a tax return with Form 8962, Premium Tax Credit (PTC). This form is used to reconcile the difference between the Advance Premium Tax Credit (APTC) made on behalf of an individual or their family and the actual amount of the credit that can be claimed on their tax return. For tax years other than 2020, Form 8962 must be attached to the federal income tax return, and individuals must report life changes to the Marketplace as they happen, as these may impact the amount of the Premium Tax Credit.
| Characteristics | Values |
|---|---|
| What is the 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 the Premium Tax Credit? | For tax years 2021 and 2022, eligibility was expanded by eliminating the rule that a taxpayer with household income above 400% of the federal poverty line cannot qualify for a premium tax credit. |
| How do I claim the Premium Tax Credit? | You must meet certain requirements and file a tax return with Form 8962, Premium Tax Credit (PTC). |
| What if I purchased coverage through the Marketplace? | You should receive Form 1095-A, Health Insurance Marketplace Statement, from your Marketplace by early February. |
| What if I received unemployment compensation in 2021? | The amount of your household income is considered to be no greater than 133% of the federal poverty line for your family size, and you are considered to have met the household income requirements for the Premium Tax Credit. |
| What if I have excludible unemployment income and Advance Payments of the Premium Tax Credit (APTC)? | You should file a Form 1040-X, Amended U.S. Individual Income Tax Return for tax year 2020. |
| What if I have health or accident insurance through a cafeteria plan? | If you didn't include the amount of the premium as taxable income, the premiums are considered paid by your employer, and the disability benefits are fully taxable. |
| Do I need to report insurance credits on federal taxes? | Yes, you must file Form 8962 and attach it to your federal income tax return to reconcile the difference between the APTC made on your behalf and the actual amount of the credit that you may claim. |
| What if I used more or less of the Premium Tax Credit than I qualify for? | You may owe taxes or get a refund/lower the amount of taxes owed. You must include Form 8962 with your tax return. |
| Do I need to report insurance benefits as income? | Generally, insurance benefits are not taxable, but there are some exceptions, such as employer-sponsored health insurance for domestic partners. |
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What You'll Learn
Understanding the Premium Tax Credit
The Premium Tax Credit is a refundable tax credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace. The size of the Premium Tax Credit is based on a sliding scale, with lower-income earners receiving larger credits to help cover the cost of their insurance.
To be eligible for the Premium Tax Credit, you must meet the following requirements:
- Your household income must fall within a certain range. For the 2021 tax year, if you or your spouse received unemployment compensation for any week, your household income is considered to be no greater than 133% of the federal poverty line for your family size.
- You cannot be claimed as a dependent by another person.
- You must have health insurance coverage through the Health Insurance Marketplace.
- You must not file a tax return using the filing status of "Married Filing Separately". However, there is an exception to this rule for certain victims of domestic abuse and spousal abandonment.
If you benefit from advance payments of the Premium Tax Credit, it is important to report any life changes to the Marketplace as they happen throughout the year. Changes to your household, income, or family size may affect the amount of your Premium Tax Credit and, consequently, alter your tax refund or cause you to owe tax.
To claim the Premium Tax Credit, you must file a federal income tax return and attach Form 8962, Premium Tax Credit (PTC), to your return. Form 8962 helps eligible taxpayers claim the Premium Tax Credit by determining their eligibility and calculating the credit based on their income and insurance premiums.
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How to reconcile your Premium Tax Credit
If you had a Marketplace health plan in 2024 and used advance premium tax credit (APTC) to lower your monthly premium payment, you must "reconcile" when filing your federal taxes. This involves comparing two figures: the amount of premium tax credit you used in advance during the year to lower your monthly premium payment, and the total amount of premium tax credits you qualified for based on your total income for the year. Any difference between these two figures will affect your refund or the amount of tax owed.
To reconcile your premium tax credit, you must complete Form 8962 with your tax return. This form calculates your actual premium tax credit and reconciles it with any advance payments you received. You can use the information from your 1095-A form to complete Part II of Form 8962. The 1095-A form is generated by the Marketplace and sent to both you and the IRS. It includes personal identification information for you and everyone covered by your health insurance plan. It also lists the information the IRS needs to reconcile your premium tax credit, including monthly premiums for the health insurance plan you enrolled in and any monthly premium tax credits you received in advance.
If you received too much premium tax credit based on your income, you may have to pay some or all of it back in the form of a tax. On the other hand, if you received too little, you may receive more premium tax credit in the form of a refund. It is important to note that if you choose not to receive advance credit payments, the full amount of the premium tax credit you are allowed will lower the amount of tax you owe for the year or increase your refund.
Additionally, beginning in 2025, individuals who have failed to reconcile their premium tax credits for two consecutive years will be found ineligible for future premium tax credits. Therefore, it is essential to stay up to date with your tax filings and reconciliations.
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Unemployment compensation and the Premium Tax Credit
The Premium Tax Credit is a refundable tax credit that helps eligible individuals and families afford health insurance purchased through the Health Insurance Marketplace. The size of the Premium Tax Credit is based on a sliding scale, with larger credits going to those with lower incomes. The credit is paid to the insurance company to lower the cost of monthly premiums.
To be eligible for the Premium Tax Credit, your household income must be within a certain range. For tax years 2021 and 2022, the American Rescue Plan of 2021 (ARPA) expanded eligibility by eliminating the rule that a taxpayer with household income above 400% of the federal poverty line cannot qualify for a premium tax credit. If you or your spouse received unemployment compensation for any week in 2021, your household income is considered to be no greater than 133% of the federal poverty line for your family size, and you are eligible for the Premium Tax Credit.
If you received unemployment compensation in 2020, you can exclude up to $10,200 of it on your 2020 Form 1040, 1040-SR, or 1040-NR. If you reported both excludable unemployment income and APTC, the adjustment should have covered both items, even if the IRS's communication only mentioned unemployment compensation. However, if you are now eligible for deductions or credits not claimed on the original return, you should file a Form 1040-X, Amended U.S. Individual Income Tax Return for tax year 2020.
If you purchased coverage through the Marketplace, you should receive Form 1095-A, Health Insurance Marketplace Statement, by early February. If this form shows that APTC was paid for a member of your family, you must complete Form 8962, Premium Tax Credit (PTC), to reconcile those advance credit payments. Form 1095-A provides information that you will need when completing Form 8962. For tax years other than 2020, if you have APTC in any amount, you must file a Form 8962 and attach it to your federal income tax return for that year.
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The Premium Tax Credit and advance credit payments
The Premium Tax Credit is a refundable tax credit that helps eligible individuals and families afford health insurance purchased through the Health Insurance Marketplace. The size of the Premium Tax Credit is based on a sliding scale, with lower-income earners receiving larger credits 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 what you pay for your monthly premiums (advance payments of the Premium Tax Credit, or APTC). These 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.
For tax years other than 2020, if you receive advance credit payments in any amount, or if you plan to claim the Premium Tax Credit, you must file a federal income tax return and attach Form 8962, Premium Tax Credit (PTC), to your return. You will use Form 8962 to reconcile the difference between the APTC made on your behalf and the actual amount of the credit that you may claim on your return. Filing your return without reconciling your advance credit payments will delay your refund and may affect your eligibility for future advance credit payments.
If you choose not to receive advance credit payments, the full amount of the Premium Tax Credit you are allowed will lower the amount of tax you owe for the year, or increase your refund if your Premium Tax Credit is more than the amount of tax you owe.
It is important to report life changes to the Marketplace as they happen throughout the year, as certain changes to your household, income, or family size may affect the amount of your Premium Tax Credit. These changes can alter your tax refund or cause you to owe tax.
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Reporting life insurance proceeds
Life insurance proceeds are generally not taxable to the beneficiary. However, there are certain situations where taxes are assessed on the proceeds.
If the beneficiary of a life insurance policy receives a death benefit, this money is not counted as taxable gross income. However, if the policyholder elects to delay the benefit payout and the money is held by the life insurance company for a given period, the beneficiary may have to pay taxes on the interest generated during that period. This interest is taxable and should be reported as interest received. The beneficiary must pay taxes not on the entire benefit but on the interest. For example, if the death benefit is $500,000 but earns 10% interest for one year before being paid out, the beneficiary will owe taxes on the $50,000 growth.
In some cases, if the death benefit from a term life insurance policy is paid out in installments rather than as a lump sum, it may come with a hidden tax surprise. When a death benefit is paid to an estate, the person or persons inheriting the estate may have to pay estate taxes. If the policyholder named an estate instead of an individual as the beneficiary, the person or people inheriting the estate might have to pay estate taxes.
If the life insurance policy was transferred to you for cash or other valuable consideration, the exclusion for the proceeds is limited to the sum of the consideration you paid, additional premiums you paid, and certain other amounts. There are some exceptions to this rule. Generally, you report the taxable amount based on the type of income document you receive, such as a Form 1099-INT or Form 1099-R.
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Frequently asked questions
The Premium Tax Credit is a refundable tax credit that helps eligible individuals and families afford health insurance purchased through the Health Insurance Marketplace. The size of the credit is based on a sliding scale, meaning those with lower incomes receive a larger credit.
To claim the Premium Tax Credit, you must meet certain requirements and file a tax return with Form 8962, Premium Tax Credit (PTC). For tax years other than 2020, if you have APTC in any amount, you must file Form 8962 and attach it to your federal income tax return for that year.
To reconcile your Premium Tax Credit, you must compare the amount of the credit you used during the year with the amount you actually qualify for based on your final income for the year. Any difference between these figures will affect your refund or tax owed.
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