The Health Insurance Premium Tax Credit. Topics. What is the Premium Tax Credit? 10/1/2014

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1 The Health Insurance Premium Tax Credit Kristy Maitre Tax Specialist Center for Agricultural Law and Taxation October 8, 2014 Topics Definitions Premium Tax Credit Basics Determining the amount of the Premium Tax Credit Factors that effect the credit Impact of changes during the year How to get the Premium Tax Credit Examples What is the Premium Tax Credit? Refundable tax credit Helps eligible individuals and families to pay for health insurance Administered through the tax system (reconcile) and the Marketplaces (adjust and determination) Available starting January 1, 2014 Two Payment Options Get it Now advance credit payments Get it Later without advance credit payment 1

2 Family Size Number of individuals the taxpayer is allowed a deduction under 151 for the taxable year Household Income Modified Adjusted Gross Income of the taxpayer, PLUS The MAGI of all individuals who were taken into account in determining the family size AND Were required to file a tax return for the taxable year Household may or may not be the same as who is in the insurance plan Modified Adjusted Gross Income is Increased By: Any amount excluded from gross income due to 911 (Foreign Earned Income and housing costs) Any amount of interest received or accrued by the taxpayer during the tax year that is exempt from tax Any amount of non taxable social security benefits including Tier 1 Railroad Retirement benefits 2

3 Worksheet for the Marketplace Application Income Types Husband Wife Dependent 1 Dependent 2 Wages Salaries Tips Net Income from Self Employment Unemployment Compensation Social Security Payments, including disability payments/ Railroad Retirement BUT not Supplemental Social Security (SSI) Tax Exempt Social Security Income Tax Exempt Interest Tax Exempt Foreign Income Alimony Retirement Income Investment Income Pension Income Rental Income Prizes, Awards and Gambling Winnings Other Income 401(k) but not a Roth 401(k) Total MAGI (Modified Adjusted Gross Income) Other Questions? Is your client living in the United States? (U.S. citizens living in a foreign country for at least 330 days of a 12 month period are not required to get health insurance coverage under the Affordable Care Act for that 12 month period. If they are uninsured and living abroad under this definition, they do not have to pay the fee that other uninsured U.S. citizens may have to pay). Does your client have Medicare Coverage, if so they cannot apply for coverage through the Marketplace? Is your client lawfully present in the United States? Was your client recently incarcerated? Did your client take a distribution from their Non Roth 401(k)? Advise your client the importance of providing updated information and changes through the year concerning income and life events to the Marketplace on a regular basis. Advise your client on the importance of bringing in Form 1095 A, to assist with their tax preparation. Federal Poverty Guidelines Determined by the Social Security Act The table used will be the most recent published guidance as of the first day of the regular enrollment period for coverage during that year Eligibility for advance premium tax credits is determined by 2013 federal poverty guidelines ( for 2015 tax year, the 2014 tables will be used) 3

4 2013 for Most States Alaska 2013 Hawaii

5 Lawfully Present An individual shall be treated as lawfully present only if The individual it is reasonable expected to be a U.S. citizen or national of the United States or an alien lawfully present in the United States In the Application Process we covered the basics of immigration status and the Forms and documents you should be requesting to prove Lawfully Present Families including Individuals not Lawfully Present The family size is determined by not taking those individuals into account AND The household income is determined without regard to those individuals Benchmark Plan Second lowest cost silver plan available to each eligible household member When no one plan covers every member it may be based on one or more policies Plans available Bronze 60% Silver 70% Gold 80% Platinum 90% Catastrophic ( under 30 or with a hardship exemption) very limited 5

6 Eligibility for PTC To be eligible the individual must: Be an applicable taxpayer: Income between 100 and 400% Federal Poverty Level (for the family size) with some exceptions Must be US citizens or lawfully present in the US Must not be eligible for other minimal essential coverage Lawfully residing immigrants with incomes below 100% FPL who are not eligible for Medicaid because of their immigration status Cannot be claimed as a dependent AND If married, files a joint return (with some exceptions) Have a Coverage Month Enrolled in a qualified health plan through the Marketplace Not eligible for other minimal essential coverage AND Premiums are paid How is the Amount of Credit Determined? The Credit Amount is Affected By: Individual or family s expected contribution based on their income Premium cost for benchmark plan Income and family size changes during the year 6

7 Keep in Mind The Marketplace will calculate the credit based on income and family issues We are reviewing the calculations to provide you a basic knowledge of how the Marketplace determines the Premium Tax Credit You will have to reconcile the credit if advanced or determine the allowed credit if your client chose to get the credit upon filing the tax return If the client chose to get the credit advanced, they must file a tax return regardless of the 2014 filing requirements Expected Contributions at Certain Income Levels Income Limits Based on 2013 Federal Poverty Level One individual $11,490 (100% FPL) $45,960 (400% of FPL) Family of Two $15,510 (100% of FPL) $62,040 (400% of FPL) Family of Four $23,550 (100% of FPL) $94,200 (400% of FPL) Example: Based on the 2013 FPL, a family of four could have a household income up to and including $94,200 and still be eligible for the PTC 7

8 2013 for Most States Example A : John Income $22,980, age 24 Plan Cost $5,000 (Benchmark Plan) Expected Contribution? $22,980 X 6.3% = $1448 John s Contribution Plan Cost $5,000 $1448 = $3552 (Premium Tax Credit) Expected Contributions at Certain Income Levels 8

9 Example B: John Income $34,470, age 24 Plan Cost $5,000 Expected Contribution? $34,470 X 9.5 = $3,275 John s Contribution Plan Cost $5,000 $3,275 = $1,725 (Premium Tax Credit) PTC Key Considerations Advanced Credit payments are optional The amount received can be reduced during the year Reconciling advanced payments is required Differences between advance credit payments and the credit is likely Changes in circumstances can effect the PTC amount A tax return must be filed Final amount of credit is based on ACTUAL income Form 8962 Premium Tax Credit Changes in Circumstances Can Affect the Credit Changes in circumstances can effect Eligibility for the PTC even if not previously eligible Amount of the Premium Tax Credit Report changes to Healthcare.gov or state marketplace website promptly Reporting changes will help ensure receipt of the proper amount of the advanced payments of the premium credit 9

10 Changes within the Year You must report a change if you: Get married or divorced Have a child, adopt a child, or place a child for adoption Have a change in income Get health coverage through a job or a program like Medicare or Medicaid Change your place of residence Have a change in disability status Gain or lose a dependent Become pregnant Experience other changes that may affect your income and household size Other changes to report: change in tax filing status; change of citizenship or immigration status; incarceration or release from incarceration; change in status as an American Indian/Alaska Native or tribal status; correction to name, date of birth, or Social Security number. How to Report Changes? You should report these changes to the Marketplace as soon as possible. If these changes qualify you for a special enrollment period to change plans, in most cases you have 60 days from the life event to enroll in new coverage. If the changes qualify you for more or less savings, it s important to make adjustments as soon as possible. Important: Do not report these changes by mail. You can report these changes 2 ways: Online. Log in to your account. Select your application, then select Report a life change from the menu on the left. By phone. Contact the Marketplace Call Center at (TTY: ) After you report a change After you report changes to the Marketplace, you ll get a new eligibility notice that will explain: Whether you qualify for a special enrollment period that allows you to change plans Whether you re eligible for lower costs based on your new income, household size, or other changed information. You may become eligible for the first time, for a different amount of savings, or for coverage through Medicaid or the Children s Health Insurance Program (CHIP). You also could become ineligible for savings if your income has gone up, for example. 10

11 Form 1095 A Issued by the Health Insurance Marketplace Sent by January 31 of each year Shows: Documentation of coverage by month Premiums AND Advanced Payments of the Premium Tax Credit Form 8962 Part 1 Annual and Monthly Contribution Part 2 PTC Claim and Reconciliation Part 3 Repayments of Excess of Advanced Payment Part 4 Shared Policy Allocations Part 5 Alternative Calculation for Marriage How Does the Reconciliation Work? Advance payments $4,000 Calculation of the PTC $3,000 Difference $1,000 Repayment Amount $1,000* *Amount from the Form 8962 that will be entered on Form 1040 limitations may apply A tax return must be filed to reconcile advance credit payments regardless of other filing requirements 11

12 36B This calculation will be indexed for inflation 1412 of the Patient Protection Act and the Affordable Care Act provides for the tax to be increased by any excess advanced payment 36B(f)(2)(B) places a limit on the increase Will apply if household income less than 500% of FPL What are Repayment Caps? Regulation 1.36B 4(a)(3) Repayment Cap Situation Client applies for coverage and is approved for a premium tax credit. Single Client decides to receive the entire premium tax credit in advance Estimated Income $28,725 (250% FPL) Eligible Premium Tax Credit = $2888 ($241/mo) 12

13 What are Repayment Caps? Regulation 1.36B 4(a)(3) Repayment Cap Situation #2 Client applies for coverage and is approved for a premium tax credit. Single Client decides to receive the entire premium tax credit in advance Estimated Income $28,725 (250% FPL) Eligible Premium Tax Credit = $2888 ($241/mo) Repayment Cap Situation Part 2 Actual Return Income $44,811 (390% FPL) Eligible Premium Tax Credit $943 ($79/mo) Actual Credit $ 943 Amount Received in Advance $2,888 Excess Advanced Payment $1,945 Because the annual household income is 300% 400% FPL, her repayment amount is capped at $1,250 13

14 What are Repayment Caps? Regulation 1.36B 4(a)(3) No Cap on Repayment Obligations for Individuals with income of more than 400% FPL If the client received a APTC based on an estimate that annual income would be less than 400% All APTC if income is more than 400% FPL must be paid back There is no cap on the repayment obligation if the ACTUAL income is above 400$ FPL Annual Household Income below 100% FPL Generally, if client s income is less than 100% FPL, they are not eligible for the premium tax credit If income anticipated allows a client to qualify for the premium tax credit (estimated income above the 100% FPL) and they received the advance premium tax credit but at year end If ACTUAL income less than 100% FPL the client is not required to repay the advanced premium tax credit 14

15 Household Income Percentage of the Federal Poverty Line Special Rules for Newly Married or Newly Divorced Couples When taxpayer marry the household income often become higher due to multiple sources of income When taxpayer divorce the opposite is true The law allows an alternate calculation in this scenario Newly Married Example: Jack and Jane Jack and Jane were married in August of 2014 Jack obtained health insurance through his employer and received a Form 1095 C Jane obtained coverage through the Marketplace that started January 1, 2014 Jane received an Advance Premium Tax credit 15

16 Form 8962 Entity Section Information Taxpayers name SSN Relief Box Victim of spousal abuse or abandonment as described in Situation 2 of Form 8962 instructions page 3 First Column 1 Form 8962 Part 1 Part 1 Questions Family Size Modified AGI Household Income Federal Poverty Line amount from table Federal Poverty Line percentage Comparison Determine our Annual Contribution and Monthly Contribution Form 8962 Line 5 Line 5 requires a calculation to determine the poverty level if the amount is more than 400 Do not complete the Alternative Calculation for Marriage Eligibility Worksheet Table 4 Round up or down to the nearest whole percentage if the calculation is between 1.00 and 3.99 If the result is less than 1.00 or more than 3.00 special rules apply 16

17 Special Rounding Rules For any amount less than 1.00, round down to the nearest whole percentage. For example for.996 enter the result as 99 For the amounts between 3.99 and 4.00, round down to 3.99, for example would be 399 For amount more than 4.00 but no more than 9.99, round up to the nearest whole percentage, for example enter as 401 For amounts more than 9.99, enter the result as 999 Form 8962 Part 2 Must complete some of the worksheets to address the questions in Part 2 Use of the Form 1094 A required Depending on the calculation Part 5 may be an alternative calculation Form 8962 Part 5 Begin this calculation with Line 1 of the Form 8962 if client elects to file a married filing joint return If you got married during the year and the Advanced Premium Tax credit (APTC) was paid for an individual in your tax family, you may be eligible to complete Part 5 to elect an optional calculation that may reduce the amount of excess APTC you would have to repay under the general rules If excess APTC was paid you may be eligible for an alternative calculation depending on the poverty level percentage Alternative Calculation would apply to the pre marriage months 17

18 Form 8962 Part 5 Married as of December 31, 2014? Filing a joint return? Were both parties unmarried on January 1, 2014? Enrolled in a qualified health plan before the first full month of marriage? Was an APTC paid to you, spouse or a dependent in 2014? 18

19 Newly Married One More Step The total is capped by the amount of additional credit that result from computing the credit under the general rule Newly Divorced Allocate the premium for the applicable period they were married on the: Benchmark plan Premium for the plan they enroll in Advance Premium Tax Credit payments If the couple cannot agree the items will be allocated 50% to each taxpayer The final regulations do allow the allocation between the couple in proportion to household income if they choose Information would have to be shared for this to be accomplished doubtful in most divorces Married Filing Separately No premium Tax credit is allowed If advance payments are received and a MFJ return is not filed the advance must be repaid Exceptions allowed Notice For calendar year 2014, a married taxpayer will satisfy the joint filing requirement of 36B(c)(1)(C) if the taxpayer files a 2014 tax return using a filing status of married filing separately and the taxpayer (i) is living apart from the individual s spouse at the time the taxpayer files his or her tax return, (ii) is unable to file a joint return because the taxpayer is a victim of domestic abuse, and (iii) indicates on his or her 2014 income tax return in accordance with the relevant instructions that the taxpayer meets the criteria under (i) and (ii). The proposed regulations will incorporate this rule for

20 What Factors Affect What People Will Actually Pay for Coverage? Tobacco use Plan chosen by the consumer, more coverage costs more 36B What Information is Required to be Reported? Level of Coverage (bronze, silver, gold platinum or catastrophic) Total Premium for the coverage without regard to the credit The aggregated amount of the advanced payment Name, address and TIN of the primary insured and name and TIN of each other individual obtaining coverage under the policy Any information provided to the exchange including any change in circumstances necessary to determine eligibility Information to determine whether a taxpayer has received excess advanced payments CALT Website 20

21 Tour of the CALT Website CALT Staff Roger A. McEowen CALT Director and is a Leonard Dolezal Professor in Agricultural Law mceowen@iastate.edu Phone: (515) Fax: (515) Kristine A. Tidgren Staff Attorney E mail: ktidgren@iastate.edu Phone: (515) Fax: (515) CALT Staff Kristy S. Maitre Tax Specialist E mail: ksmaitre@iastate.edu Phone: (515) Fax: (515) Tiffany Kayser Program Administrator tlkayser@iastate.edu Phone: (515) Fax: (515)

22 Premium Tax Credit Summary Refundable credit for only eligible individuals Get it NOW advanced credit payments OR Get it Later without the advanced credit payments Report changes in circumstances Advanced credit payments must be reconciled Everyone who receives this credit must file a tax return Use Form 1095 A, Form 8962 and Form Federal Poverty Guidelines 22