Premium Tax Credits : Eligibility,Limits & Calculations

Premium Tax Credits are a form of financial assistance the government provides to help individuals and families afford health insurance. The credits are available to individuals and families with income below a certain level. They can be used to lower the monthly cost of a health insurance plan purchased through the marketplace.

The credit can be applied in advance to reduce the monthly premium cost, or it can be claimed on the individual’s tax return. The income, family size, and the cost of the health insurance plan decide the amount of tax credit. These credits are intended to make health insurance more affordable for individuals and families who cannot afford coverage otherwise.I suggest you also read six misconceptions about premium tax credits.

Who is eligible for Premium Tax Credits?

Individuals and families must meet specific criteria established by the government to be eligible for Premium Tax Credits. The main eligibility criteria include the following:

• Income test: Actually , right now this income test is not needed .because the American Rescue Plan of 2021 (ARPA) along with the American Reduction Act eliminated the income limit for PTC till the end of 2025. So persons & families with any income are eligible for Premium Tax Credits.
• Insurance coverage test: The credit is only available to individuals and families who do not have access to affordable employer-sponsored health insurance. Individuals eligible for other “minimum essential coverage,” plans like Medicare or Medicaid, or employer-sponsored coverage do not qualify for PTC.
• Legal status test: Only citizens or lawfully present in the United States (legal immigrants) who are residents of the United States are eligible for this tax credit. 

How to claim Premium Tax Credits?

Anyone eligible to claim Premium Tax Credits can opt for one out of two ways available to claim .But both requires you file tax return even if there is no income.

Get PTC in advance

Individuals and families can choose to have the credit applied in advance to lower the cost of their monthly health insurance premium. To do this, they must enroll with the Health Insurance Marketplace for which the open enrollment period for coverage in 2023 is scheduled between November 1, 2022, to January 15, 2023. 

Also note that in 2023, people with annual income up to 150% of the Federal Poverty Level , will be able to enroll in marketplace plans year-round.[source: KFF.Org]

At the time of application, you will be required to furnish 

1. Information on your income, the number of people in your household, 
2. Whether you or your family members file their taxes
3. Whether you and your family members have any health coverage through their employers. 

The marketplace ,based on your income and other inputs , may decide whether household members are eligible for a premium tax credit or other healthcare programs .

Second way is to claim the premium tax credit on your tax return

If an individual or family chooses not to have the credit applied in advance, they can claim it when they file their taxes. They must complete Form 8962, Premium Tax Credit, and attach the form with the tax return. The amount of the credit is calculated based on the individual’s or family’s actual income for the year, and any advance credit payments will be reconciled with the credit claimed on the tax return.

How are Premium Tax Credits calculated?

Premium Tax Credits are calculated based on several factors, including income, family size, and the cost of the health insurance plan. The calculation is designed to ensure that individuals and families only pay a certain percentage of their income on health insurance. The basic formula for the calculation of Premium Tax credit is as follows:

Cost of the second lowest cost of Silver plan in the individual’s or family’s area = XXXXX

Less  

A certain percentage of their income) = XXXXX

                                                                            ————–

Premium Tax Credit = XXXXX

The percentage of income that individuals and families are expected to pay for health insurance is called the “applicable percentage.” 

• The applicable percentage is based on income and family size.
• The cost of the second lowest cost of Silver plan is used as the benchmark plan and is determined by the marketplace. The Silver plan is a standard plan that the government uses to calculate the credit.
• It’s worth noting that the credit amount may change if the individual or family’s income or family size changes during the year. It’s necessary to report any changes to the marketplace, so the credit amount can be adjusted accordingly.

How do you report changes in circumstances that affect Premium Tax Credit eligibility?

Any changes in circumstances- like income, family size, and insurance coverage- may affect Premium Tax Credits eligibility. , you must report the changes. Failure to do so may result in paying back some or all of the credit received or being denied in future years. Here are the steps to report changes:

1. Report changes as soon as possible: Report any changes in circumstances as soon as they occur. This will help ensure that the credit amount is adjusted in a timely manner.
2. Report changes to the Health Insurance Marketplace: Changes can be reported to the Health Insurance Marketplace, either online or by phone. The marketplace will then recalculate the credit amount based on the new information.
3. Provide documentation: The marketplace may require documentation to verify the changes. This can include pay stubs, tax returns, or other forms of documentation.
4. Update information on your tax return: If you claim the tax credit on your tax return, you must report any changes in circumstances when you file your return. This can be done using Form 8962, Premium Tax Credit.
5. Keep records: Keep records of any changes in circumstances, including the date of the change and any documentation provided to the marketplace.

How to appeal for denied Premium Tax Credit claims?

If an individual’s or family’s Premium Tax Credit claim is rejected, they have the right to appeal the decision. Here are the steps for the appeal process:

1. The first step in the appeal process is to request a reconsideration of the denied claim by contacting the Health Insurance Marketplace or the agency that made the original decision.
2. The individual or family can provide additional information or documentation to support their claim by producing pay stubs, tax returns, or other forms of documentation.
3. Attend a hearing: If the reconsideration request is denied, the individual or family has the right to a hearing before a judge. During the hearing, they can present their case and provide additional evidence.
4. If the individual or family is not satisfied with the hearing outcome, they can submit a written appeal to the next level of review.
5. A higher authority, such as an appeals council or federal court, will review the case. The individual or family will be notified of the final decision.