The Tax Cuts and Jobs Act eliminated the tax penalty for not having health insurance beginning January 1, 2019. However, the new law does not affect the federal Premium Tax Credit. If your client obtained healthcare coverage through the Marketplace or a state exchange, they may still be eligible to receive this tax benefit.
Changes to the Individual Shared Responsibility Provision
The Individual Shared Responsibility Provision of the Affordable Care Act (also known as Obamacare) first took effect in tax year 2014. The provision required that all American taxpayers have qualifying healthcare coverage and imposed a tax penalty on those who did not. The Tax Cuts and Jobs Act has since repealed this provision, reducing the penalty to zero beginning with returns filed for tax year 2019.
The Premium Tax Credit
Even though the tax penalty for not having medical coverage has been eliminated, Americans can still obtain affordable healthcare on the Marketplace and state exchanges, and they can still receive the Premium Tax Credit if they are deemed eligible.
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. The amount of credit is ultimately determined by an individual’s modified AGI and family size. To calculate your client’s Premium Tax Credit, you will use the information from their Form 1095-A Health Insurance Marketplace Statement to complete and file Form 8962 – Net Premium Tax Credit with their return.
Determining Your Client’s Eligibility for the PTC
In order for your client to be eligible for the Premium Tax Credit, the following statements must be true:
- They must have obtained health insurance through the Marketplace or other state exchange. The premium tax credit is not available to anyone who has non-Marketplace health coverage.
- They cannot be claimed as a dependent on someone else’s tax return.
- They, or a member of their household, must be enrolled in their plan for a minimum of one month and be unable to obtain health coverage other than what is available through the Marketplace or state exchange.
- Their health insurance premiums must be paid in full by the date the tax return is due. This can include advance payments of the Premium Tax Credit.
- Your client’s total household income for the year is greater than the federal poverty limit but less than four times the limit. There is a notable exception to this provision when the estimated household income was at least 100% of the federal poverty level at the time of application for the APTC. In such cases, they can obtain the PTC if their income ultimately is below 100% of the federal poverty level.
- In most cases, if your client is married filing separately, they are not eligible for the tax credit.
Reconciling Advance Payments of the Premium Tax Credit (APTC)
If your client is eligible for the Premium Tax Credit, they may wait and have you claim the credit when you file their tax return at the end of the year. Alternatively, they could apply the amount to monthly premiums during the year. In this case, the Marketplace pays the health insurance company directly, reducing the amount your client must pay out of pocket.
Taxpayers who receive advance credit payments must reconcile those payments to the actual premium tax credit they are allowed for the year. This reconciliation is done on Form 8962.
If your client’s advance credit payments are less than their premium tax credit, the difference will appear on the Form 1040 as payment and can either be applied towards their tax liability if they have one or else added to their refund.
If your client’s advance credit payments are more than their premium tax credit, they will need to repay any excess advance credit payments that they received. However, the amount your client will be obligated to pay back may be limited if their household income is less than four times the federal poverty line for their family size.