The 1040A: Affordable Care Act tax issues

The Affordable Care Act was passed in 2010 by the Congress and signed by President Obama on March 23rd, 2010. One of the features of the Affordable Care Act was to create insurance Marketplaces, where citizens could purchase health insurance and possibly qualify for tax credits to help pay the monthly premiums. Those tax credits are called Premium Tax Credits – as they help pay the monthly insurance premiums.

If your household income is at or below 400% of the Poverty Level – you could qualify for these Premium Tax Credits – when you enroll for Marketplace-provided health insurance each year during the open enrollment period – usually from November through January. Part of the enrollment process is you estimate what your total income will be for the upcoming tax year. Then the Marketplace calculates how much Premium Tax Credit you would be eligible for, when your new health insurance policy starts each January. You can choose to have the Premium Tax Credit paid directly to your insurance company each month, to reduce or eliminate the cost to you, of your monthly premiums. This is called the Advance Premium Tax Credit.

The health insurance Marketplace will mail you the form 1095-A by January 31st each year, which will show the amount of the Advance Premium Tax Credit you received during the tax year, that was forwarded to your health insurance company – towards payment of your monthly premiums. Click form 1095-A for the form.

You have to reconcile these Advance Premium Tax Credits on your tax return each year – to determine the exact amount you should have received – based on your final income amount for the tax year. This process compares the full-year amount of the Premium Tax Credit you were eligible for, with the amount of the Advance Premium Tax Credit that was actually forwarded to your insurance company to pay premiums.

If you overestimated the income you would make for the tax year, you could receive a larger than anticipated Premium Tax Credit as an additional refund on your tax return. That is because your income was less than you expected, so you would receive more Premium Tax Credits, to help pay for your insurance premiums, to compensate for your lower income for the year.

If you underestimated your total income for the year, you might have to give back, or repay, some of the Advance Premium Tax Credit you received during the tax year. This is because you made more money than you had anticipated, and therefore could have afforded to pay more of the monthly insurance premiums yourself – without the financial aid of the Advance Premium Tax Credit.

This calculation to see if the Advance Premium Tax Credit you received was appropriate to your final Premium Tax Credit – is called the reconciliation process. You must complete this process each year you receive any Advance Premium Tax Credits to help pay for your monthly health insurance premiums.

The IRS form 8962 – Premium Tax Credit (PTC) calculates this for you. It will analyze the insurance information from the Marketplace reported on the 1095-A, and compare that to your final, yearly Income for the tax year. Click form 8962 for the form, and the form 8962 Instructions.

If you qualify to receive even more of the Premium Tax Credit, because your final income was below what you estimated to the Marketplace upon enrollment, then that is refunded to you as the Net Premium Tax Credit, on line 45 of the form 1040A.

If the form 8962 calculates that you received too much of the Advance Premium Tax Credit during the year, because your final income was higher than what you estimated to the Marketplace upon enrollment, then you have to repay some or all of that credit. That is reported on line 29 of the form 1040A, as the Excess Advance Premium Tax Credit Repayment.

As you might expect by now after reading many of these blog posts, all the tax software will properly calculate this for you, based on the information on the 1095-A form from the Marketplace, and your final total income for the year. Your tax professional should also be able to help you with this. The 8962 form is submitted with your taxes when you e-file the return.

I believe it is useful for each taxpayer to understand the logic behind the potential tax credits they each could receive, to help pay for health insurance policies they purchase from the Marketplace.

People can disagree about the politics of the Affordable Care Act – but these Advance Premium Tax Credits – have helped to make health insurance more affordable for many, many citizens. The merits of the Affordable Care Act are for the Politicians to debate.

My job as an IRS Enrolled Agent – is to describe these tax matters with a clear explanation – so taxpayers can take advantage of the Credits if they legitimately and legally qualify for them.

Click the link below for the next Blog post that explains the (5) Nonrefundable Tax Credits of the form 1040A – that could reduce your Initial Tax Liability to zero, but not below zero.

The 1040A: the (5) Nonrefundable Tax Credits

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Blog Written Content ©2017 Michael D Meyer. All rights reserved.

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Legal Disclaimer: Nothing written or expressed in this Blog shall be construed as legal, accounting, or tax advice. This Blog is for informational purposes only, to inform Individuals about the IRS tax forms required to file an individual tax return, and the instructions that accompany such IRS tax forms.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any tax transaction or filing any tax form.

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