The New Tax Forms – Reconciling the Advance Premium Tax Credit (Part 4 of 4)

(This is the fourth post in a four-part series about the new tax forms. Read parts one, two, and three.)

We conclude our series on the new tax forms by taking a look at IRS Form 8962, Premium Tax Credit (PTC). This is the document an individual completes to reconcile his tax credit with his actual income.

The key word in Advance Premium Tax Credit (APTC) is advance. It’s provided to individuals and families ahead of time – before they know what their actual income will be for the year. For most people, the income figures used when calculating the APTC for 2014 differed somewhat from their actual income in 2014, so they have to straighten this out on their tax return. Those who ended up making less than they expected will receive a larger refund; those who made more will owe a portion of their APTC back to the government.

The amount that an individual or family will have to pay back is capped based on household income as a percentage of the federal poverty level (FPL) and tax filing status.

Advance Premium Tax Credit Repayment Limits

APTC repayment limits

Of all the forms we’ve reviewed, Form 8962 is the most difficult to complete. There are five parts to it, and most of them are pretty confusing:

  • Part 1: Annual and Monthly Contribution Amount
  • Part 2: Premium Tax Credit Claim and Reconciliation of Advance Payment of Premium Tax Credit
  • Part 3: Repayment of Excess Advance Payment of the Premium Tax Credit
  • Part 4: Shared Policy Allocation
  • Part 5: Alternative Calculation for Year of Marriage

In Part 1, the main goal is to determine the household income as a percentage of the FPL and the family’s monthly contribution for healthcare if they had purchased the benchmark plan. A table is provided that shows the premium caps as a percentage of income for each income level.

part 1

In Part 2, the family claims the tax credit and reconciles it with any advance received using Form 1095-A, which they should have received from the Marketplace. If all Forms 1095-A for the tax household include coverage for January through December with no changes in the monthly amounts, the calculation is pretty straightforward. However, if any family members had gaps in coverage or if the premium changed during the year, the math gets a little harder and the calculations must be done on a monthly basis.

part 2

In Part 3, taxpayers who will have to pay a portion of their APTC back to the government use a table to calculate their repayment limit. This section is pretty easy to complete, but it will still come as a surprise to some taxpayers that they have to pay back a portion of their advance tax credit.

In Part 4, people with a qualified health plan that covers at least one individual in their tax family and at least one individual not in their tax family must complete a series of steps to allocate the premium correctly. Here’s an example from the instructions for Form 8962 of a family that would need to complete section 4:

Henry enrolled himself, his spouse, Cara, and their two dependent children, Heidi and Matt, in a policy for 2014. APTC was paid on behalf of each. The couple divorced on June 30, and Cara purchased different health insurance for July through December in which she enrolls with Heidi and Matt. Henry claims Heidi as a dependent on his tax return. Cara claims Matt as a dependent on her tax return. For the months Henry and Cara were married (January through June), they will allocate the amounts from the policy on line 30 using the rules under Taxpayers divorced or legally separated in 2014, later. For the months Henry and Cara were divorced (July through December), they will allocate the amounts from the policy on line 31 using the rules under Policy shared with an individual for whom another taxpayer claims a personal exemption.

Part 5 is optional for couples who married during the tax year but may reduce the amount of excess APTC they are required to repay.

Families who receive an advance premium tax credit will be required to complete Form 8962 each year to sync up their expected income with their actual income and make sure they receive the right tax credit amount. While it is a little complicated, the alternative would be for people to pay the full cost of their insurance and then claim the credit when they file their taxes, and that would make health insurance cost prohibitive for many families.

We sincerely hope you found this four-part tutorial beneficial. Again, it was not intended to make you a tax professional or even to provide tax advice. Rather, our goal was to familiarize you with the new tax forms so you can answer basic questions for your clients and point them in the right direction when the questions get a little more complicated.

NOTE: If you don’t yet sell individual health, you should! The individual market is growing, and brokers who are able to help individuals choose a health plan and apply for a subsidy quickly and easily without going through or a state exchange have a huge opportunity. Learn more here.

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