What is the Premium Tax Credit (PTC) and what is Tax Form 8962?



What is the premium tax credit?

The Premium Tax Credit is a refundable tax credit that can help you lower the cost of your insurance premiums when you purchase a health insurance plan through the Health Insurance Marketplace.

Don’t worry about knowing the tax rules. With TurboTax Online, you can connect with real tax professionals or CPAs to help you with your taxes – or even do them for you. Get unlimited tax advice right on your screen from live tax experts while you do your taxes, or have it all done for you from start to finish. So you can increase your knowledge and understanding of taxation and be 100% sure that your return is guaranteed.

You can receive this credit before you file your return by estimating your expected income for the year when you apply for coverage in the Marketplace. This counts as the advance premium tax credit. You can also claim the premium tax credit after the fact on your tax return with your actual income.

The amount of credit you receive depends on your estimated income and household information, which you will report on any application you file with the marketplace.

If your estimated income is between 100% and 400% of the federal poverty line for a household your size, you can claim the premium tax credit. You can use all or part of this credit up front to lower the cost of your monthly premiums, while still leaving money in your pocket.

If you use more of your premium tax credit than your final taxable income allows, you will need to refund the difference when filing your Form 1040 at tax time. But if you use less of the premium tax credit during the year than you were entitled to, you’ll receive the difference as a refundable credit on your return.

It’s important to note that for tax year 2020, the American Rescue Plan Act of 2021 suspended the obligation to repay any excess premium tax credit prepayments when filing your Form 1040.

Eligibility conditions for the tax credit on premiums

You must meet all of the following criteria to be eligible for the premium tax credit:

  • You need to get your health care coverage through the market
  • You may not be eligible for health care coverage through alternative options such as your employer or the government
  • Your income must be within a certain range
  • Another person cannot claim you as a dependent when they return
  • You must file a joint return if you are married

Changes in income and family size can affect your eligibility, so report them to the Marketplace to ensure you receive the proper tax credit. The premium tax credit program uses the federal poverty line to determine the income brackets that qualify you for the credit.

The US Department of Health and Human Services reports annual federal poverty levels, which vary depending on whether you live in the 48 contiguous states and the District of Columbia, Hawaii, or Alaska.

The range is 100% to 400% of the federal poverty line amount for your family size for the current tax year.

For example, a person earning between $ 12,880 and $ 51,520 in 2021 meets the income criteria to qualify, while a family of four qualifies with family income between $ 26,500 and $ 106,000.

Even if your income makes you eligible, you must also meet other eligibility criteria. You will use Form 8962 to determine your full eligibility for the premium tax credit.

Get all the deductions you deserve. With TurboTax Deluxe, we’ll research over 350 tax deductions and credits so you get your maximum refund, guaranteed. It’s free and enjoy $ 10 off TurboTax Deluxe when you file.

What is tax form 8962?

If you’ve purchased health insurance from Healthcare.gov – or in your healthcare market if you live in a state that maintains one – you’ll need to use tax form 8962. This form has two parts that you’ll need to complete :

  1. Determine your credit eligibility
  2. Claiming the premium tax credit

Form 8962 is also used to reconcile the premium tax credit you may be entitled to against any advance premium tax credit payments you have already received.

The first part of the form determines the amount of your annual and monthly contribution according to your family income and the tax size of your family. Your tax family usually includes you and your spouse if you are completing a joint return and your dependents. You must include all of your family or household income.

After you have completed this information and determined your applicable federal poverty level, you can determine the amount of credit you can claim. You have two choices to claim it:

If you opt for monthly payments, the government pays your insurer over the course of the year, which reduces the cost of your monthly premiums.

If you can claim the premium tax credit and your insurer has received advance payments from the government, the second part of Form 8962 compares the amount of credit you used and your final available credit. There are three possible scenarios:

  • If you chose to receive the refundable tax credit for premiums on your income tax return, you can deduct it from your tax payable.
  • If you have more credit available than the payments made to your insurer on your behalf, you can claim the remaining balance on your return to reduce your taxes.
  • If you have underestimated your income and the government has paid more than the actual value of your loan, you will have to repay the difference when you file your income tax return.

When purchasing health insurance in the market, you must provide information about the size and income of your family to determine your eligibility for the premium tax credit. Over the course of the year, you may see revenue changes that differ from what you expected by filling out the Marketplace app.

Therefore, you might face different circumstances at the end of the year which means you may have a credit balance or you may need to pay off some of your credit. However, the American Rescue Plan Act of 2021 suspended the obligation to repay any excess premium tax credit prepayments for the 2020 tax year.

Remember that with TurboTax, we’ll ask you simple questions about your life and help you fill out all the right tax forms. Whether you have a simple or complex tax situation, we’ve got you covered. Feel confident in doing your own taxes.

Source link

Leave A Reply

Your email address will not be published.