Form 8962: Premium Tax Credit and Shared Policy Allocation

A tax preparer explains shared cost allocation to her client

The Premium Tax Credit (PTC) is a refundable tax credit intended to help low to moderate income earners offset the cost of their Marketplace health insurance premiums. If your client usedhealthcare.gov or their state’s health insurance exchange to get coverage in a qualified health plan, they may be eligible for this credit. The Premium Tax Credit is refundable, and the amount an individual receives is based on their family size, their household income when compared to the poverty level, and the cost of health coverage in their local market.

If your client receives the PTC, they may choose to apply the full credit when they file. Alternatively, they may elect to have advance payments of their tax credit paid to their insurance company. These are known as Advance Payments of the Tax Credit, or APTC.

Forms 1095-A and 8962

If your client or anyone in their household is enrolled in a health insurance plan through the federal Marketplace or state exchange, they will receive Form 1095-A, Health Insurance MarketplaceStatement. Among the information reported on the form, you will find details about your client’s coverage, any premiums paid, advanced payments received, and second lowest cost silver plan (SLCSP).

To calculate your client’s Premium Tax Credit, you will need to reconcile the amounts reported on their Form 1095-A and use those figures to complete Form8962, Premium Tax Credit. If your client received anyAPTC in the prior year, those payments will also need to be reconciled on Form8962 and submitted with their tax return.   

What is Shared Policy?

A shared policy occurs when a qualified health plan purchased from the Marketplace or from a state health care exchange covers at least one individual on the tax return and at least one individual who is not on the tax return. This might be the case if:

  • Your client is married but they are filing a separate return from their spouse;
  • Your client was divorced during the tax year, but they shared a policy with their ex-spouse fora certain time prior to the separation;
  • One of the individuals on your client’s tax return (themselves, their spouse or a dependent) were enrolled in a qualified health plan by someone who is not part of the tax family (for example, the ex-spouse enrolled a child is claimed as a dependent by your client); or
  • One of the individuals on your client’s tax return (themselves, their spouse or a dependent) enrolled someone not on the tax return in a qualified health plan (for example, your client enrolled a child whom the ex-spouse is claiming as a dependent, or the child is filing their own return but is covered by your client).

Form 8962 and Shared Policy Allocation

In the case where your client does have a shared policy, the three amounts reported on Form1095-A (enrollment premiums, SLCSP premiums, and APTC) must be allocated between their tax return and the tax return of the other individual(s) for each month they had the policy. This shared policy allocation would then be reported by each taxpayer on their respective tax returns. In the event your client cannot agree upon a reasonable allocation percentage, the allocation percentage will typically be equal to the number of individuals on the shared policy that your client can claim on their tax return, divided by the total number of individuals on the policy.

See how to complete Form 8962 with a Shared Policy Allocation on TaxSlayer Pro.

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