Taxpayers who purchased their health care coverage through the Health Insurance Marketplace may be eligible for a Premium Tax Credit (PTC). The credit is designed to make the purchase of health care coverage less expensive for taxpayers with lower income by offering financial assistance to pay premiums. Form 8962, Premium Tax Credit (PTC), must be filed with the tax return to calculate and take the PTC. The amount of the credit is based on household income and family size. Covered taxpayers with lower incomes will get a higher credit since the PTC is designed to make health insurance more affordable for those with lower incomes.
The Premium Tax Credit can be claimed when filing the taxpayer’s 2019 tax return. However, the taxpayer can choose to have some or all of the credit the taxpayer is expected to receive paid directly to the insurance company to help offset some of the monthly cost of health care premiums. The payment is considered an advance payment. These advance credit payments are based on information furnished by the taxpayer (family composition, household income) to the Marketplace when he applied for coverage. As indicated previously, any changes to household income or family composition during the year should be furnished to the Marketplace by the taxpayer as soon as it is known since a change in circumstances will change the estimated Premium Tax Credit. A reconciliation of the actual PTC to advance credit payments of the PTC made to the insurance company during the year will be done in Part II of Form 8962 when the taxpayer files his tax return.
If the taxpayer chooses to receive advance payments for the credit, he will need to subtract the total of the monthly advance credit payments made to the insurance company from the total of the monthly Premium Tax Credits calculated on his 2019 tax return. If the taxpayer, his spouse, or any of his dependents received more advance credit payments than the Premium Tax Credit calculated, he will be required to repay the difference. The repayment will be added to his total tax. The repayment is calculated on Form 8962 and carried to Schedule 2 (Form 1040), line 46.
The amount of excess advance credit payment of the PTC to be repaid will be limited for certain taxpayers. Since the limitation on repayment is based on the taxpayer’s household income as a percentage of the Federal Poverty Line (specified in the Form 8962 instructions), it is adjusted each year for inflation. See the 2018 and 2019 Repayment Limitation tables, below.
If the taxpayer’s household income is 400% or more, there will be no limitation on repayment and the full excess advance payment must be repaid. If household income is less than 400% of the Federal Poverty Line, then the repayment limitation in the table above (See the Form 8962 instructions) will apply.