What is premium tax credits?
The premium tax credit is a federally funded program that reduces the cost of insurance premiums when you purchase coverage through the Health Insurance Marketplace. Families and individuals who earn less than the federal poverty threshold can apply for this credit.
What is the process?
When you apply through the Marketplace for health care, you estimate the family income to help your insurer determine how much of a premium tax credit you will receive. This credit then goes directly to your insurance firm, lowering the monthly premium.
If you are eligible for a premium tax credit, your insurer will send you a "Health Insurance Marketplace Statement" called a 1095-A when it issues your policy. This form reports your premium tax credit amount to the IRS.
Your premium tax credit will be based upon your estimated household earnings and the size and number of dependents in your tax family. This includes you, your spouse (if you're filing a joint tax return), and your children. Your premium tax credit may change if you have a change in income or your tax family changes.
What happens when you get more money than you anticipated?
Your premium tax credit may need to be repaid if your household income rises during the year. The maximum amount that you can pay back is capped at 400 percent of your household's income. This is also known as "the clawback."
How does it work if your income changes
Report any changes to your income as soon as you can. This will prevent you from having to repay any excess tax credit.
The amount you have to pay back depends on your income and whether or not your income is above the poverty line. These rules are explained in the instructions of Form 8962 which is used for reporting information about the offsets to be claimed to the cost to purchase health insurance on the Health Insurance Marketplace.
What is Form No. 8962
When you file an income tax return you will need to declare the amount that you received for your premium tax advance during 2021. The amount of money you'll have to repay will be determined by the result of the reconciliation between the advance premium credit you received in 2021 and your actual premium credit.
The Form 8962 is used to reconcile the credit for advance premiums you received in 2021. You'll find this form on your state's website or at the IRS website.
The IRS will also require that you report the results of your reconciliation of the advanced premium credit that you received in 2021. This will appear in your 2021 federal return on Part III, Line 29.
This rule is not applicable if, for example, your household income exceeds 138% of poverty in a state that hasn't implemented Medicaid expansion under the ACA or if you have received unemployment benefits in any given week starting in 2021. These exceptions, however, only apply to income you reported for your taxes in 2021.