Premium Tax Credit · 17 NTTC Training –TY2020 Mark had a Marketplace policy with APTC through...

Pub 4012 – Tab HPub 4491 – Lesson 26

Premium Tax Credit

NTTC Training – TY20202

Marketplace policies and Form 1095-A

Premium Tax Credit (PTC)

Affect on itemized deduction for medical insurance

PTC scope limitations

Comprehensive (and rare) PTC topics

Lesson Topics


Premium Tax Credit (PTC) helps to pay the policy premiums

Marketplace estimates PTC at time of purchase

PTC can be paid in advance (APTC) to insurance company or applied as refundable credit on federal tax return

What is Premium Tax Credit?


Enrolled in qualified health coverage from the marketplace

─ Taxpayer, spouse if MFJ, claimed dependents

─ Will receive Form 1095-A

Not all Marketplace policy are qualified health plans

─ Catastrophic coverage is not eligible for PTC

─ Will not receive Form 1095-A

Who is Allowed Premium Tax Credit?


Not eligible for coverage other than coverage in the individual market

─ That is, not eligible for affordable employer or government sponsored coverage

─ Medicare and Medicaid are the most frequently seen government coverage



Must be an applicable taxpayer

Premium for the month must be paid by the due date of the return (not including extensions)



Modified adjusted gross income (MAGI) at least 100% but not more than 400% of the federal poverty line (FPL)

─ Except if below 100% and the Marketplace granted APTC

─ Except if below 100% and taxpayer is a lawfully present alien but not eligible for Medicaid because of immigration status

Who is an Applicable Taxpayer?


Residents of 48 contiguous states and D.C.

If taxpayer or spouse lived in Alaska or Hawaii at all during 2020

─ Higher FPL

─ Enter Alaska or Hawaii as resident state field on Personal Information screen

See FPL table in Pub 4012 Tab H

Federal Poverty Line (FPL) Based on State Lived In


If married, must file MFJ

─ Except if qualifies as head of household

─ Except if filing MFS because of domestic abuse or spousal abandonment



Taxpayer cannot be claimed as a dependent by another taxpayer

─ If other person does not have a filing requirement or files only to get a refund of estimated or withheld tax, they are not a “another taxpayer”

─ Then, our taxpayer is not a dependent



MAGI of taxpayer

─ And spouse if MFJ

─ And claimed dependents whose gross income exceeds the filing requirement

Does not include MAGI of

─ Spouse if MFS or HoH

─ Unclaimed dependent

Household Income for PTC Calculations


AGI as shown on the return

─ Plus social security or tier 1 railroad retirement benefits not taxed

─ Plus excluded foreign income (Form 2555)

─ Plus tax-exempt interest

No reductions

─ Not even for one-time income (lump-sum SS, lottery)

MAGI for PTC


AGI on return: $20,000

Social security of which -0- was taxed: $7,000

Exempt interest income: $150

MAGI = $27,150

Tax software makes the calculation after all data properly entered

MAGI for PTC Example


Must have qualified health coverage from the Marketplace (Form 1095-A)

─ Does not have to be the same policy throughout the year

─ Can have more than one Form 1095-A

Cannot be eligible for coverage other than the individual market

─ See Family Glitch discussed at end of lesson

PTC for Family Member


Cannot claim PTC if eligible for affordable employer coverage, whether or not enrolled (Form 1095-C)

Employer-offered coverage must

─ Provide minimum coverage value and

─ Be affordable (cost less than 9.86% of projected household income)

Eligible for Employer Coverage?


Except for (can get PTC)

─ COBRA not taken

─ Retiree coverage not taken

Marketplace will make the determination – taxpayer responsible to keep Marketplace informed of changes

More in comprehensive section at end of lesson

Eligible for Employer Coverage?

Pub 974


Mark had a Marketplace policy with APTC through July 31

Mark’s new employer started covering him immediately on July 9

Mark can claim PTC January through July, if otherwise eligible

Eligible for Employer Coverage Example


Cannot claim PTC if eligible for government coverage, whether or not enrolled (no form)

─ Medicare – lose PTC starting the first day of the fourth month after turning age 65 (sooner if actually enrolled in Medicare)

─ TRICARE (for military, former military, and dependents) –lose PTC if covered on the first of the month

Eligible for Government Coverage?


Medicaid and Children’s Health Insurance Program (CHIP)

─ Ask taxpayer if eligible

─ Eligibility for both can vary by county (see comprehensive topics at end of lesson)

Marketplace will make the determination and may pass taxpayer to that agency



Exception:

Retroactive coverage

─ Lose PTC starting first day of month after approval date

─ Medicaid or CHIP coverage is often granted retroactively



Can qualify for PTC even though covered by

─ Limited coverage Medicaid

─ AmeriCorps or AfterCorps (for returning Peace Corps)

─ Other coverage that is not MEC

Rely on Marketplace determination

PTC Eligibility


MAGI (discussed previously)

─ On return + claimed dependents’

─ Higher income means lower PTC

MAGI as a percentage of FPL (arithmetic)

Policy cost (from Form 1095-A)

Benchmark plan (usually from Form 1095-A)

Computing Premium Tax Credit (Form 8962)


The second lowest cost silver plan (SLCSP) for those in the household with qualifying coverage during the month

If not shown on Form 1095-A

─ Taxpayer can call Marketplace to get it

─ Can look up on HealthCare.gov or state exchange with the fewest number of policies possible (Pub 4012, Tab H)

Benchmark Plan


Done month-by-month

─ Family might change (birth, adoption, death)

─ Change of address (premium rates vary)

─ Change in eligibility

If all months are the same, can use the annual numbers

Tax software makes the calculations as required on tax Form 8962

Computing Premium Tax Credit


Taxpayers receiving APTC must file tax returns and reconcile APTC

─ If not (e.g., failed to file 2019 return) may lose APTC in later year

─ Up to the Marketplace

Encourage taxpayers to file all returns as required

Computing Premium Tax Credit


Preparer needs to determine:

─ Whether a claimed dependent has to file a return based solely on the gross income test

• Pub 4012 Tab A

─ If so, enter the amount of the dependent’s MAGI for PTC purposes

Household MAGI for PTC


Form 1095-A Void box checked

─ It is voiding a previously issued Form 1095-A

─ Do not use the voided Form 1095-A nor the Form 1095-A previously received

Form 1095-A Corrected box checked: use the Form 1095-A that is marked corrected

If another taxpayer enrolled someone in taxpayer’s tax family, need a copy of that Form 1095-A

Form 1095-A


The premium must be paid by the due date of the return to claim PTC

When taxpayer stops paying, there is one month that Form 1095-A will show as zero

PTC – Premium Not Paid


Taxpayer not eligible for PTC for that month

Taxpayer does have coverage for that month

May be less expensive for taxpayer to pay that month’s premium than repay the APTC for the month

─ Need to get a corrected Form 1095-A

─ Can file return now; no need to wait

PTC – Premium Not Paid


Unclaimed dependent

Multiple policies

Ineligible individual on policy

Affordability of employer coverage

Family glitch

Medicaid / CHIP eligibility

Comprehensive or Rare Topics at End of Lesson


You have entered all the tax return information

You have determined if a dependent has a filing requirement and entered their MAGI accordingly

Return may show more PTC than APTC – additional credit on the return, or

Return may show excess APTC – to be repaid with the return

Final PTC – Form 8962


Cap on repayment is based on household MAGI as a % of FPL

Full repayment if ≥ 400% FPL (Form 8962 will show 401% for all those > 400%)

Limitation on Repayment of Excess APTC

Pub 4012 Tab H

MAGI % of FPL Single All others

Less than 200% $325 $650

At least 200%, but less than 300% $800 $1,600

At least 300%, but less than 400% $1,350 $2,700

400% or more No limit No limit


Excess APTC and taxpayer is near a benchmark income level, consider possible ways to reduce AGI

─ Household income is near 200%, 300% or 400% of FPL on Form 8962

Consider ways to lower AGI

─ See ideas in Pub 4012 Tab H

─ Such as, a deductible IRA (including a recharacterization of a Roth IRA contribution to a traditional IRA)

PTC – Look for Cliff Hangers


The student may elect to treat some or all of their grant as

taxable income to increase an allowable education credit

When taxable, the grant is considered earned income for

the gross income test of filing requirement

Once a filing requirement exists for the student, the

student’s MAGI may have a PTC impact on the taxpayer’s

return (e.g., parent’s return)

APTC Repayment – Lowering AGI


MFJ taxpayers are over 400% of FPL and have to repay a lot of APTC:

Two one-person FPLs are greater than one two-person FPL

MFS is not eligible for PTC, BUT the repayment cap applies if one or both at


If there is a Schedule C in return, the self-employed health adjustment to gross income could make a substantial difference

─ Use other medical insurance (e.g., spouse’s Medicare) for self-employed health deduction

Otherwise, return is out of scope (cost can be significant)

APTC Repayment and Schedule C


No cap on repayment if not lawfully present in the US or electing to take at least one month of Health Coverage Tax Credit on Form 8885 (out of scope)

Be sure to answer NO to this question

PTC Repayment – Rare


Itemized deduction for medical insurance in 2020 is

─ Decreased for any additional PTC that is claimed on the 2020 return

─ Increased for any excess APTC that must be paid back with the 2020 return

Adjusting the self-employed health deduction is out of scope

PTC and Medical Itemized Deduction


For a return with PTC and itemizing medical deductions, go to Schedule A

Make an “other medical” entry

─ Positive amount for excess PTC that is being repaid on the return (increases the current deduction)

─ Negative amount for additional PTC on the return (reduces the current deduction)

Make a note on the intake form for taxpayer and reviewer

PTC and Medical Itemized Deduction


Roger's APTC is $2,400. He is single with no dependents, and lives in Mississippi. His household income is over 400% of the FPL for a family size of one. How much of his APTC will he have to repay with his tax return?

A $0

B $1,000

C $1,400

D $2,400

PTC Quiz 1


Answer: D

Because Roger's household income is over the 400% FPL, his additional tax liability is not capped by the additional tax limitation table

But he should see if he can reduce his MAGI below 400% (Pub 4012, Tab H for ideas)

PTC Quiz 1


Judy is single with no dependents

─ In December 2019, Judy enrolled through the Marketplace in a qualified health plan for 2020

─ On July 14, 2020, Judy enlisted in the Army and was immediately eligible for government sponsored minimum essential coverage

─ For what period is Judy able to claim a premium tax credit (if she meets all of the eligibility criteria)?

PTC Quiz 2


A - The entire year

B - January through June

C - January through July

D - Judy is not eligible for the premium tax credit

Judy is eligible for PTC for July assuming she paid her premium for July (and did not get a full premium refund) because her government-sponsored coverage was not in effect on July 1

PTC Quiz 2 (cont.)


Piper’s income is 300% of the FPL for her family size. For this tax year, she purchased health insurance through her employer. Is she eligible to take the premium tax credit for herself?

PTC Quiz 3


Answer: NO

Piper’s is not eligible for PTC – the coverage must have been purchased through the Marketplace to claim PTC

PTC Quiz 3 (cont.)


Patrick is single and has no dependents

─ In November 2019, Patrick estimated his 2020 household income to be $27,825 and he enrolled in a Marketplace qualified health plan

─ The Marketplace determined he was eligible for advance payments of the premium tax credit, but he decided to claim the credit on the return

─ Patrick began a new job in August 2020 and became eligible for affordable employer-sponsored coverage on September 1st

─ Is Patrick eligible for the premium tax credit?

PTC Quiz 4


Answer: Since Patrick became eligible for affordable employer-sponsored coverage for the full month of September, he is eligible for a premium tax credit from January through August of 2020 only (if otherwise eligible)

PTC Quiz 4 (cont.)


Harry purchased qualified health insurance through the Marketplace. What documentation will he receive to prepare his tax return?

PTC Quiz 5


Answer: Harry will receive Form 1095-A

If Harry had instead purchased catastrophic coverage, no Form 1095-A would be issued

PTC Quiz 5 (cont.)


Changes in circumstances that can affect the amount of the premium tax credit include:

A. Decrease in household income

B. Marriage

C. Birth of a child

D. Losing employer-sponsored health care coverage and buying Marketplace coverage

E. All of the above

PTC Quiz 6


Answer: Changes in circumstances that can affect the amount of the premium tax credit include:

A. Decrease in household income

B. Marriage

C. Birth of a child

D. Losing employer-sponsored health care coverage and buying Marketplace coverage

E. All of the above

PTC Quiz 6 (cont.)


Based on final tax return data

Final PTC may be more than the Advance PTC (APTC)

─ Claim a credit on the Form 1040

Final PTC may be less than the APTC

─ Pay back the excess (may be capped)

Final PTC

PTC Scope Limitations


Self-employed health insurance deduction

Shared policy

Alternative calculation for year of marriage with excess PTC

Code FF on Form W-2 box 12 (QSEHRAs)

Out of Scope PTC Scenarios


SEHI deduction based on Marketplace policy with PTC becomes iterative

─ Increasing the deduction decreases MAGI, which increases PTC; increased PTC decreases the deduction and increases MAGI, which decreases PTC; and so on

Other (non-Marketplace coverage) can be used to sop up the SEHI deduction

─ Use Marketplace coverage cost on Schedule A if itemizing

Otherwise, out of scope

Self-Employed Health Insurance Deduction (SEHI)


A Marketplace policy that covers individuals that are not on the same tax return, such as

─ A recently divorced couple both on one marketplace policy

─ Child covered in a marketplace policy with one divorced parent but claimed by the other

─ Child covered on parent’s marketplace policy moves out and claims own exemption

─ MFJ couple on the same Form 1095-A changing to MFS

Part IV of From 8962 is out of scope entirely

Shared Policies (Form 8962, Part IV)

Pub 4012 Tab H


Applies only when there is a Marketplace policy(ies) and there is excess APTC*

If tentative Form 8962 shows additional PTC, alternative calculation does not apply and return is in scope

See 5 questions in Pub 4012, Tab H

Form 8962, Part V is out of scope entirely

Alternative Calculation for Year of Marriage (Form 8962, Part V)


QSEHRAs reimburse eligible employees for health care costs, including marketplace policy premiums

The PTC for a month may be reduced (not below zero)

The employee will have a benefit amount in box 12 of their W-2 with code FF

Returns with W-2 – Box 12 code FF amount and otherwise eligible for PTC are out of scope

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs)

Quality Review


Verify MAGI on Form 8962

─ Is MAGI of a claimed dependent whose income exceeds their filing threshold correctly computed

Confirm box on Form 8962 is marked for MFS with

domestic violence or spousal abandonment exception

Quality Review


Is there a Schedule C in the return

─ SEHI claimed with non-Marketplace coverage

If itemizing medical, verify insurance premiums were adjusted for excess APTC or additional PTC

Quality Review


Excess APTC and is taxpayer near a benchmark?

Significant repayment of APTC is shown?

Alternatives to reduce AGI (or AGI of claimed dependents) – Pub 4012, Tab H

Quality Review


Premium Tax Credit

Comprehensive (or Rare) Tax Topics

PTC


Unclaimed dependent

Multiple policies

Ineligible individual on policy

Affordability of employer coverage

Family glitch

Medicaid / CHIP eligibility

PTC – Comprehensive or Rare Topics


When APTC has been given by the Marketplace for an individual and

That individual does not claim their own exemption deduction and

No one else claims the individual as a dependent, then

The person that enrolled the individual is responsible for reconciling the APTC

PTC – Unclaimed Individual (special situation)


Possible situation:

─ Parent enrolls adult child in Marketplace policy with APTC

─ Parent decides to not claim child (or cannot claim child)

─ Child does not file a return (or if he/she files, declares they can be claimed as a dependent by another taxpayer)

Parent cannot claim PTC for a nondependent

─ Coverage cost and SLCSP for child are not included in parent’s Form 8962 so all APTC is excess

─ See Pub 974

PTC – Unclaimed Individual Example

Pub 974


Two or more individuals of the same tax family in the same zip/city are enrolled in different Marketplace policies

Can add up the actual cost of their coverage (Form 1095-A column A)

Can add up the reported amount of APTC (Form 1095-A column C)

May or may not be able to add up the SLCSP quotes (Form 1095-A column B) – See Pub 4012 Tab H

Multiple Policies

Pub 4012 Tab H


Form 1095-A may include coverage for eligible individuals and an ineligible individual, e.g., unlawfully present alien

May need to get new quotes for both the actual plan cost and the SLCSP for eligible individuals only

Check with Local Coordinator whether return can be prepared at your site

PTC – Ineligible Individual on Policy

Pub 974


Examples

─ An unlawfully present spouse on the same policy as a lawfully present taxpayer

─ An individual that was eligible for government-sponsored coverage but was included in the Marketplace policy for the same month (e.g., Medicare)

PTC – Ineligible Individual on Policy

Pub 974


Employer-offered coverage must

─ Provide minimum coverage value and

─ Be affordable (cost less than 9.86% of projected household income)

Determined as of the first day of the month

─ Not eligible for employer coverage on the 1st, PTC allowed

Affordability of Employer Coverage


Marketplace will make the determination and if it grants APTC, safe harbor and can claim PTC

If taxpayer got no APTC and now wishes to claim PTC, may confirm that employer offer was not affordable

─ Form 1095-C will show employee offer only

Affordability of Employer Coverage


An employee-taxpayer’s tax family member is ineligible for PTCs if taxpayer (or spouse if MFJ) is offered employer-sponsored coverage (ESI) and self-only coverage is affordable – example:

─ Employee coverage is affordable, so children in the tax family are ineligible for PTC

─ If no spousal ESI offer, spouse is eligible for PTC

PTC Eligibility – Family Glitch

Employee-only offer at 6% of income

Employee and children offer at 10% of income

Pub 974


Medicaid eligibility involves determination of household members and household income with Medicaid rules

Expansion states use 138% of FPL for eligibility, or more

Nonexpansion state generally use 100% of FPL for eligibility

Rely on Marketplace determination – if APTC granted, then eligible for PTC

Medicaid / CHIP Eligibility

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