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Premium Tax Credit: Help for marketplace healthcare users

4 min read

4 min read

Editor’s note: This article has been updated to reflect updates to the Premium Tax Credit from the American Rescue Plan Act of 2021, which includes special provisions for tax years 2021 and 2022.

The premium tax credit helps make your health insurance premiums more affordable. You’ll receive it as an advance credit or claim it as a refundable credit on your return. So, even if you owe little or no tax, you can still benefit from the credit.

To find out if you can claim this health coverage tax credit, you’ll need to look at your household income. If you do qualify, your household income will also determine the amount of credit you can claim.

Qualifying for the premium tax credit

To qualify:

Premium Tax Credit form
  • You must buy your health insurance from the federal or a state marketplace.
  • You must file a joint return with your spouse if you’re married. There are exceptions to this if you’re considered unmarried for head of household filing status or if you’re a victim of domestic abuse or spousal abandonment.
  • You can’t be claimed as a dependent by anyone else
  • Your household income must fall below 400% of the federal poverty level for your family size. Your income must also be above the range for Medicaid eligibility (or above 100% of the FPL in states that didn’t expand Medicaid for adults). For tax years 2021 and 2022, you can still qualify with income of 400% and higher. Here’s the 100% level for 2021:
    • Family of one — $12,760
    • Family of two — $17,240
    • Family of four — $26,200

If you have any unemployment income for a week that starts in 2021, you’ll be eligible for the premium tax credit as if your income is 133% of the federal poverty level. Ex: If you received unemployment, you’re the only person in your household, and your income is $80,000, you’ll be treated as if your income was $16,971 for the premium tax credit. As part of the March 2021 stimulus bill, this special rule for unemployment only applies to 2021 income.

If you’re not sure if you qualify for this premium tax credit, visit www.healthcare.gov. You’ll be able to shop around for different plans and get an estimate of your premium tax credit. A special open enrollment period for 2021 allows anyone to enroll in 2021 coverage through May 15, 2021, or to change coverage if they are already enrolled.

Advance premium tax credit

This advance tax credit is based on your estimated household income you provided when you signed up for marketplace insurance. It’s paid directly to your insurance provider every month and helps with the premium you pay out of pocket.

When you prepare your taxes, we’ll reconcile the advance paid to your insurance company. We’ll figure this with the amount of the premium tax credit you’re eligible for based on your actual household income.

So, if your actual premium tax credit was less than your advance, we’ll do one of these:

  • Subtract the difference from your refund
  • Add the difference to your balance due. Keep in mind that the difference is subject to certain caps.

However, for your 2020 taxes, you won’t need to repay any excess advance. This change is temporary, and only applies to your 2020 taxes.

If your premium tax creditis more than your advance, we’ll either:

  • Add the difference to your refund
  • Subtract the difference from your balance due

The easiest way to avoid having to pay back this health insurance tax credit is to update the marketplace when you have any life changes. Life changes can influence your estimated household income and your credit amount. So, the sooner you can update the marketplace, the better. This ensures you receive the correct amount. A life change includes:

  • A marriage or divorce
  • Having a baby, adopting a child, or placing a child for adoption or foster care
  • A child on your policy turning 26 or a dependent changing status so they’re no longer your dependent
  • The death of anyone in your household
  • Changes to income
  • An offer of job-based insurance coverage to anyone in your household, even if they don’t enroll in it
  • Someone in your household getting coverage from a public program, like Medicaid, Children’s Health Insurance Program (CHIP), or Medicare
  • A change to your permanent home address

If you receive the advance premium tax credit, you’ll need to file a return for the year, even if you don’t meet the threshold to file otherwise.

Premium Tax Credit filing: Avoiding a rejected return

Be sure to attach Form 8962 to your return, if you, your spouse, or your dependent had ACA Marketplace coverage at some point in the year and received the Advance Premium Tax Credit. Attaching the form can help you avoid your return being rejected when you e-file (shown as Reject Code F8962-070).

To help you complete Form 8962, the health insurance exchange will send you Form 1095-A. Can’t find your Form 1095-A? You can get a copy from www.healthcare.gov or your state’s exchange portal if you received coverage from a state exchange.

If you don’t believe you had Marketplace insurance, you can attach a statement to your e-filed return stating that you did not have Marketplace coverage.

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