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November 2nd, 2022
This guide will educate you on Premium Tax Credits. This blog post will describe how the tax credit works and how you can use it for your benefit.
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What Is Premium Tax Credit?
The Premium Tax Credit is a refundable credit you may qualify for if you purchase health insurance through the federal or state marketplace.
This tax credit was signed into law in 2010 as part of the Affordable Care Act (Obamacare).
Ultimately, this credit exists to make health care more affordable to lower and middle-class Americans.
How Does Premium Tax Credit Work?
Ideally, when you purchase your health insurance, you pay it in full.
Then when it comes time to file your tax return, you will receive the entire credit in full.
However, most people choose to have an estimate of the credit advanced to them each month to offset their health insurance payments.
This is called Advanced Premium Tax Credit, and it’s treated differently from the regular Premium Tax Credit.
The Premium Tax Credit represents the maximum number of credits you can receive.
The Advanced Premium Tax Credit is when you receive your Premium Tax Credit early to help with insurance payments.
How Do I Qualify For The Tax Credit?
To be eligible for this tax credit, you must:
- Do not file a tax return using the married filing status separately.
- It cannot be claimed as a dependent by another person.
- You or a family member can’t get affordable coverage through your employer.
- Health insurance coverage that is not covered by advance credit payments and is paid by the due date of your return.
- You or a family member are not eligible for coverage through a government program like medicare.
What eligibility changes have been made because of the ARPA?
The American Rescue Plan Act of 2021 (ARPA) temporarily removed one of the eligibility requirements for 2022.
There was a limit on who could qualify for this credit based on their household income.
Normally, If the household income is 400% more than the federal poverty line, then that family would not qualify for this credit.
How Much Credit Will I Receive?
How much Premium Tax Credit you will receive will depend on your actual income.
On the other hand, how much-advanced premium tax credit you receive will be based on your estimated income.
You can calculate how much credit you will receive by using Form 8962.
Why Do I Owe The IRS Money?
Suppose your advanced tax credits received is more than your premium tax credit.
In that case, you will be held responsible for paying back the difference.
Remember, the Premium Tax Credit represents the maximum amount of credits you are supposed to receive.
When you received your advanced tax credits, they gave you credits based on your estimated income.
However, that estimation can sometimes be wrong.
If they send you excess money because of an error, you will be expected to pay back that extra money you received.
However, if your Premium Tax Credit is more than your Advance Tax Credit, then you will be refunded money back.
How Do I Claim The Credit?
To claim the credit, you will have to file Form 8962.
Moreover, you can use the information on Form 1095-A to help get all the information you need to fill out Form 8962 accurately.
Your marketplace will provide Form 1095-A if you or one of your dependents had coverage through them.
As usual, the IRS recommends filing your taxes online using the IRS Free File or seeking professional assistance.
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