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How to Claim the Health Insurance Premium Tax Credit

As the first year of health insurance through the new health care exchanges winds down, another new challenge is just beginning. The upcoming tax season will be the first year to report, claim, and reconcile the new health insurance premium tax credit [1]. It will be a new, and in some cases challenging, addition to your 2014 tax return.

Health Insurance Tax Credit

The new health care premium tax credits are part of the Affordable Care Act (ACA) [2], or Obamacare. The tax credits and health insurance subsidies [3] are used to purchase health insurance through the new insurance exchanges. The tax credit adjusts the annual premiums you pay to a percentage of your household income.

New Health Insurance Tax Form

To claim the premium tax credit, you’ll get a new form in the mail this year. Your health insurance marketplace will furnish you with a Form 1095-A [4]. You will need the form 1095-A to claim the health insurance premium tax credit on your tax return.

Update: Health Care Tax Form 1095-A May Contain Error: What to Do [5].

How to Claim the Health Insurance Premium Tax Credit

Once you receive your form 1095-A, you can claim your tax credit on your return. To calculate and claim your 2014 health insurance premium tax credit (PTC) you’ll need to file Form 8962 [6]. You will use form 8962 to complete the following steps:

Determine final annual income. On form 8962 you will calculate your tax credit based on your final Modified Adjusted Gross Income [7] (MAGI) for the year from your tax return. MAGI currently excludes income that is tax deferred under 401ks [8].

Reconcile advance payments. If you received advance payments for the tax credit, in addition to calculating your PTC, you’ll have to reconcile the amount of the payments you received with the actual credit you should receive based on your 2014 income. The premium and reconciliation will be a monthly calculation.

Calculate tax credit or amount of repayment. If your income was higher than expected, you’ll have to repay the excess. There is a repayment limitation based on income. If you didn’t take advance payments, or if your income was lower than expected, you’ll receive a tax credit on your tax return.

Penalty for No Health Insurance

The penalty for no health insurance [9] will also be reported on your 2014 tax form. To avoid the penalty, you’ll need to claim an exemption from the individual mandate [10] and file form 8965 [11].

Health Care Tax Credit Amounts

Tax credits are for household income between 100% and 400% of the Federal Poverty Level (FPL). Tax credits will be used to cap annual health insurance premiums for those who qualify. The contribution percent goes from 2% of income at the 100% of FPL to 9.5% of income at 400% of FPL. You can find the Federal Poverty Level income ranges [1] for 100% of FPL to 400% of FPL to see the annual income in dollars.

Health Insurance Tax Credit Calculator

If you plan to use this tax credit and your income is near the cutoff, it will be very important to not only understand tax brackets [12], but also understand how the different income levels can dramatically impact your taxes. As soon as the tax credits are finalized, we will add the calculations to our tax calculator [13] for next year so you can project and play with the tax credit based on various income levels.

More on the Health Insurance Tax Credit

You must file for the tax credit. Even if you do not normally file a tax return because you don’t meet the minimum income to file taxes [14], you’ll need to file a return to claim the health insurance tax credit or report advance payments.

Refundable. The health care tax credit is refundable [15], which means you can receive a tax refund even if the credit is more than your total tax.

Filing Status. Your health insurance credit will depend on your filing status [16]. If you are married, you must file jointly to claim the health care tax credit. In addition, if someone else claims you as a dependent [17], you will not be eligible for the health insurance subsidies.

Delays. Because the tax credit will be based on getting new forms from the health insurance exchanges, and new calculations (which in some cases are circular calculations for the self employed) there is always the possibility of delays during tax season. Like always, we’ll keep you updated on any delays [18] that the new forms will have on getting your refund [19].

More Health Insurance Tax Topics