June 8, 2016
Premium Tax Credit Update
When filing your 2015 income tax return, one of two things may have effected the amount that you were refunded or the amount you owed: (1) an increase in taxes owed resulting from receiving an excess of premium assistance throughout the year, or (2) receipt of Premium Tax Credit (PTC) due to not receiving sufficient government assistance in paying premiums for health insurance purchased over the exchange. The increased tax liability or tax credit often goes unnoticed until the time of filing your return, and you may have little understanding of why you are paying added tax or receiving a credit.
Beginning in 2014 every taxpayer is required to have some basic level of health insurance coverage either through an employer sponsored plan or through the individual purchase of policy from a health insurance provider. Lower income individuals may have access to policies through their state health benefit exchanges and may receive a Premium Assistance Credit to help reduce the out-of-pocket costs of obtaining health insurance coverage. A qualifying person may choose to receive the credit in advance; however, the actual amount of the Premium Tax Credit (PTC) is determined at the end of the year and is based on the household’s total Modified Adjusted Gross Income and family size.
In essence, the exchange PTC determination is an estimate. Therefore, it is necessary for the recipient to reconcile the Advanced PTC (APTC) amount received with the amount for which they are actually qualified. An APTC recipient must file a tax return which includes a schedule calculating the year’s actual PTC. The credit will be reduced by any part of the APTC used to pay the taxpayer’s health insurance premiums during the year. If the actual APTC exceeds the PTC, the taxpayer may be required to repay the difference, although there are some provisions to modify this requirement.
In order to receive a Premium Assistance Credit, you must fall within an income bracket that is greater than 100% but less than 400% of the federal poverty line depending on your family size. For 2016, the federal poverty line is $11,880 for an individual and $16,020 for a family of two. In order to determine your eligibility for the Premium Assistance Credit, go to https://www.healthcare.gov/ and search “poverty guidelines”. Your income will determine both the excess premium as well as the amount of premium tax credit received or excess advance premium tax credit owed at year end.
Health care exchanges do not have an accurate understanding of your income throughout the year. Therefore, you should contact your local exchange representative to discuss any significant changes to your income which may affect the Premium Assistance Credit you are eligible to receive. Such life events include:
· An increase in household income including taxable distributions from retirement accounts
· A marriage or divorce
· The birth of a child or other change to household composition
· The gain or loss of eligibility for government or employer sponsored health care coverage
· A change of address
· A change of employment
If you have encountered any of these events, please contact your tax advisor and your exchange representative to determine if your premium assistance must be adjusted. Making a timely adjustment could save you monthly income or prevent you from having to repay excess premium credit when you file your return.
The combination of running a business and your life and preparing for tax time can drive some people into a slight panic. But no need to get stressed if you are prepared. Now is the time to start organizing all documents required to file your tax return.
Like the old paraphrased saying goes: In this world, two things are certain—death and taxes. The recent federal tax overhaul changed a lot of rules, so it’s as important as ever to understand your tax obligations, including those on Social Security benefits.
Unfortunately, cyber scammers never take a vacation. In fact, the IRS has issued a warning of a surge in fraudulent emails that bait potential phishing victims with fake tax transcripts. Links within these emails lead recipients to documents containing the well-known malware, Emotet.