The premium tax credit came into effect in the year 2014 and is a refundable amount that helps eligible individuals and families cover the health insurance premiums purchased through the Health Insurance Marketplace. This tax-saving helps to offset the health insurance cost for individuals who qualify.
Eligibility for a Premium Tax Credit
Individuals need to meet the following eligibility criteria to qualify for the premium tax credit:
- Individuals must obtain coverage through the health insurance Marketplace.
- An Individual’s income must be within a certain range to qualify for the premium tax credit. The individual’s income should be at least 100 but not more than 400% of the federal poverty line for their family size.
- Individuals should not be eligible for health coverage through employer or government health insurance plans.
- They should not be claimed as dependent on other person taxes.
- If one is married, then both the partner must file a joint tax return.
If there are any changes in income or family size of the individuals, then their eligibility will be affected, and they need to report these to the Marketplace to ensure that they receive the appropriate tax credit.
How to Claim the Credit on Tax Return?
The way individuals choose to receive the tax credits depends on the way they report it on their return.
- If individuals choose to receive the tax credit in advance to reduce their insurance cost, then the amount will be subtracted from the credit calculated on their tax return. If the credit they received in advance was less than the amount they were eligible for, then the amount will get added to their tax refund, or it may reduce their tax amount if they owe. It is also possible that individuals received more credit than they deserved. In this case, they have to pay-back the over-payment in their tax return.
- If individuals choose to receive a tax credit at the time of filing tax, then they can claim the total calculated amount that increases their refund or lowers the tax they owe.
How Premium Tax Credit Work?
To get premium tax credit individuals first need to fill out an application on the Health Insurance Marketplace, after which they will get an estimate of the amount of credit they can claim for the coming year. The amount of credit they will get depends upon their family size, an estimate of their household income for the coming year, and the average plan price in their area for a similar family like them.
Individuals are eligible for more credit if their family is large and their income is low. Individuals can decide on the way to use their tax credit. The Marketplace notifies the insurance company about the individual’s credit amount and reimburses them. The insurance company applies the credit to the individual’s premium each month, so their expense of monthly premium reduce. Individuals also have the option to claim for the credit while filing a tax return for the year they were covered by the plan. If they have applied only a part of it, then they can claim the unused amount when they file the return. It is completely up to individuals that whether they wish to receive credit as a lump sum, or wish to pay less in each month premium.