health care, your tax return — December 11, 2014

Premium Tax Credit … What's So Premium About Taxes?

by Bobby Willover

Premium Tax Credit

The 2014 tax season will most likely be … unique. That’s unique, not terrible, horrible, no good, and very bad. That’s all because of the extra wrinkles the Affordable Care Act is adding. But they’re just that, wrinkles, not cause for panic.

Overall, the ACA aims to ensure that individuals and families have good and affordable health insurance. And the Premium Tax Credit is geared toward the affordable part of that. Simply put, it’s a way to help those who need help paying their insurance premiums – which is how the credit got that catchy name.

So that’s the what, why, and who of the Premium Tax Credit, but what about the how and the when? Glad you asked.

Premium Tax Credit and You

The how of the PTC is that you must meet six requirements to claim the credit:

  • You must buy your insurance through your state’s official insurance Marketplace. Pretty straightforward. Some states have their own Marketplace, some use the federal Marketplace.
  • Your household income must fall within certain limits. The limit varies by the size of your household.
  • You aren’t able to get affordable health insurance through an employer. This doesn’t mean you don’t want to pay that much, it means that the insurance costs more than a certain percentage of your household income.
  • You’re not eligible for coverage through a government plan, like Medicaid, Medicare, CHIP, or TRICARE. Again, pretty straightforward. If you’re covered by a government plan, you meet the ACA individual coverage requirements.
  • You must not file as married filing separately. If you’re married, you must file a joint return (though an exception is available for victims of domestic abuse).
  • You can’t be claimed as a dependent. If your parents can still claim you, you can’t claim this credit.

Getting Paid

Unlike other credits, you have a choice about when you get this credit. With the PTC, you can either get it, when you sign up for insurance, or later, when you file your taxes. Here’s how that works:

  • Before you file your taxes: You can have some or all of your estimated credit paid in advance to your insurance company (not to you). This way you pay less out-of-pocket expense for your premiums during the year. With this method, you’ll need to subtract any amount received from the total credit figured on your taxes.
  • After you file your taxes: You pay for your insurance premiums as normal. Then when you file your taxes, the credit is figured. And since it’s refundable, the credit will increase your refund or lower your balance due, if you have one.

Either way, we’ll do the credit calculation for you when you file your taxes with 1040.com.

One Last Thing …

Maybe we call this one the how much: If you opt to get the credit when you get insurance, remember that your credit amount is determined by the numbers you enter for household income and family size. It’s in your best interest to be as accurate here as you can. Getting too much or not enough credit in advance will definitely affect your bottom line when you file.

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