Health Insurance and Federal Taxes: The Government Giveth and the Government Taketh Away
Tax season has come and gone for most of us (did somebody say extension?), but even if you already filed, if you didn’t get it all right, you can expect to hear back from the IRS telling you to try again. One particularly confusing area involves the premium tax credit offered as part of the Affordable Care Act (ACA), aka Obamacare. The tax credit is a signature piece of the ACA, providing access to health insurance for millions of Americans who otherwise wouldn’t be able to afford it.
The Advance Premium Tax Credit, or APTC, lowers your monthly health premium significantly, depending on factors like your household size and estimated income, or more accurately, your estimated Adjusted Gross Income (AGI). How well you calculated your AGI impacts the monthly APTC amount you received, including whether you were overpaid during the year. Just as how you report income withholdings and deductions impacts the size of your annual tax bill or refund, how you report income (and any changes to income or household throughout the year) can impact whether you got paid too much in monthly APTC payments. If that’s the case, you’ll be asked to make up the overpayment on your federal income taxes, along with a monetary penalty.
Getting the APTC calculated correctly can save you a painfully rude awakening come tax time. It’s also possible the government made a mistake on the forms they sent you. Here are a few things it can help you to know about regarding your health insurance and federal taxes.
Make Sure the Government Forms Are Correct
If you had a Marketplace plan paid for in part with premium tax credits, you must file a federal tax return even if you don’t usually file or wouldn’t otherwise be required to based on your income. In mid-January, you should receive Form 1095-A with important ACA tax information. This is not an IRS form; it comes directly from the ACA marketplace, which is either Healthcare.gov or your state marketplace if you live in a state that runs its own marketplace, like Covered California or New York State of Health. Form 1095-A shows the premiums you paid each month, the premium tax credits used, and a column for the “second lowest cost Silver plan,” which you might see on the form labeled SLCSP.
Information from Form 1095-A gets used for Form 8962, Premium Tax Credit to determine if there is any difference between the premium tax credit you used and the amount you qualified for, or if you had Marketplace coverage but didn’t get any advance payments of the premium tax credit. Comparing the two forms is called reconciling the APTC.
First, look over 1095-A carefully. Does it reflect the health plan you chose from the Marketplace? Does it include only the household members who are on the plan? These are two places where errors could be made.
Also, check to see if the SLCSP was calculated correctly. How you may ask? Part III, Column B of the 1095-A is the SLCSP column. If you see a zero or blank in any month when you or a member of your household was on a Marketplace plan, something is wrong. Also, if your household (and the people on your plan) changed during the year, unless you reported the change to your Marketplace at the time, the SLCSP is probably wrong for one or more months. Reportable changes include births, deaths, marriages, and divorces that change who is covered under your health insurance. You might also lose dependents during the year as your children pass the age when you can still keep them on your insurance.
If you see any discrepancies, form 8962 is the form to use to reconcile the APTC reported on your 1095-A. Of course, the two don’t line up; that would be too easy. For instance, the annual amount of your enrollment premium that can be found in Column A on line 33 of Form 1095-A needs to be entered on line 11 of form 8962. Likewise, the monthly amounts are on lines 21-32 of 1095-A but get entered on lines 12-23 of form 8962. The same applies to Column B (SLCSP) and Column C (APTC). Note that Column C on the 1095-A equates with Column f on form 8962. Only the IRS knows why.
Once you’ve put in all the hard pencil-and-paper work, Line 26 of form 8962 will tell you if you used more or less of the premium tax credit than you qualified for, which will have an impact on your tax bill or refund accordingly.
If you had a Marketplace plan but didn’t receive any premium tax credits, carefully go over your 1095-A to make sure it is accurate. Part III, Column C should have a zero or blank for every month that you didn’t receive any credit. You might want to do some extra digging to find out if you qualified for credits that you didn’t receive or take advantage of. HealthCare.gov has a health coverage tax tool to help with that, but you might also want to get help from a local agent/broker or assister who is familiar with the ACA and can guide you to reporting your income (AGI) properly to maximize your eligibility for financial assistance.
If you are one of the more than ten million people who ask for extensions to file their federal income taxes every year, you’ve still got until October 17 to figure things out. If you are using tax software or a tax preparer, all of this should be figured out for you, subject to your check and verification. If you are an income tax DIYer (bless your heart), it’s worth taking the time to make sure your income is reported correctly and displayed accurately on tax forms. Otherwise, you might not be getting the full benefit you are entitled to, or you could get penalized for receiving more than you should.
On a final note, in case it wasn’t obvious before now, we here at the Insurance News Desk aren’t tax lawyers or accountants, and nothing in this article or on our website should be taken as tax advice. If you are unsure about any aspect of tax preparation, it’s worthwhile to bring your questions to a tax attorney or professional tax preparer.
