What is Advance Premium Tax Credit – Overview
The Advance Premium Tax Credit (APTC) is a federal tax credit that lowers your monthly health insurance bill. It is effective when you buy Obamacare insurance plans from the health insurance marketplace.
The APTC helps decrease the average monthly health insurance bill on plans you sign up for through the insurance marketplace. It does this by paying part of your premium tax credit directly to the insurance company monthly. This is an optional way to receive your premium tax credit.
Otherwise, you would pay the entire premium out of your pocket each month and claim the credit in a lump sum based on your tax return.
To be eligible for APTC, you must buy health insurance through the insurance marketplace and meet specific requirements. If the advance premium tax credit you receive exceeds the actual premium tax credit you qualify for based on your final income, you may have to repay the excess when you file your tax return.
How Does Advance Premium Tax Credit Work
The APTC is mainly a type of premium tax credit. The credit is sufficient to cover the cost of health insurance premiums, but only if the policy is bought from the insurance marketplace.
Advance Premium Tax Credit – How Does it work?
Generally, your income should be between 100% and 400% of the federal poverty level for your family size to qualify for the premium tax credit. For 2021 and 2022, the income cap for premium tax credit eligibility was temporarily removed under the American Rescue Plan Act, allowing more people to qualify regardless of income exceeding 400% of the federal poverty level. However, larger credits are generally allotted to people with lower income limits.
If you qualify for this program, the health insurance marketplace will calculate your estimated premium tax credit amount for the current year. Then, you can choose to have a part of the estimated credit paid directly to your choice of insurance provider every month. This helps to claim the credit in advance, which is why this program is called an “advanced” premium tax credit.
Remember, the advance premium tax credit for a fiscal year is the premium tax credit you select to have the marketplace pay directly to your insurance provider in a specific calendar year. Your APTC is calculated based on your estimated income and household information you provide to the marketplace, which estimates your premium tax credit for the year.
However, several factors are variable and likely to change during a calendar year. For instance, you may get a raise at work, which will reduce your credit. Due to this, the actual amount of your premium tax credit, based on your actual AGI (adjusted gross income), can differ from your advance premium tax credit.
The difference between your advance premium tax credit and the actual premium tax credit you qualify for is reconciled on IRS Form 8962. You must include this form with your tax return to reconcile the amounts paid directly to your insurance provider with the actual amount of your eligible premium tax credit.
Once you reconcile the amounts on your tax return and the advance premium tax credit turns out to be more than your actual premium tax credit amount, you will need to pay back the excess amount.
On the other hand, if your advance premium tax credit amount is lower than your actual premium tax credit amount, then the difference is credited against your tax liability for the current year. This results in a significantly larger refund or lower balance due.
What Are Some Examples of Advance Premium Tax Credits?
Imagine you buy health insurance through the insurance marketplace. In this scenario, the program calculates an estimate that you qualify for a USD 1,000 premium tax credit. You can choose to use less than your total estimated premium tax credit as your APTC, but the choice of how much of the estimated amount to apply in advance is up to you. If you select this entire amount to be paid back to your health insurance provider, the APTC will reduce your monthly premium payments by around USD 83 (USD 1,000 / 12 months).
You can also decide to have the health insurance marketplace pay nothing to your insurance provider every month. In such cases, you would have no APTC, and you can claim the entire USD 1,000 APTC amount on your tax return for the current year.
How Much is the Advance Premium Tax Credit?
Your APTC amount is based on the cost of the second-lowest-cost silver plan available in the marketplace, adjusted by your income, ensuring that the amount you pay does not exceed a certain percentage of your income. Your maximum APTC amount is calculated based on the health insurance marketplace’s estimate for this calculation. You can select the portion of this amount to take in advance.
The amount of the premium tax credit, including the advance portion, varies based on your income, the cost of the second-lowest-cost silver plan, and your family size rather than a fixed statutory amount. It differs from other tax credits whose amount may be eliminated based on your earnings.
How to Get Advance Premium Tax Credit?
You must first qualify for the premium tax credit before being eligible for the advance premium tax credit. To do this, you must buy a health insurance policy from the insurance marketplace.
Below are the criteria that you need to fulfill to be eligible for receiving an advance premium tax credit for your health insurance plans:
- Enrolled in a marketplace plan for a minimum 1 month
- You and your family members enrolled in a health insurance plan are not eligible for coverage through an employer-sponsored or government-sponsored health insurance plan, such as Medicaid or Medicare
- Having an income that is at least 100% and no more than 400% of the designated federal poverty level, based on the size of your family
- Generally, you cannot be eligible for the premium tax credit if you file your taxes using the status “married filing separately,” with limited exceptions
- Not claimed as another taxpayer’s dependent
If you are eligible, you will receive the advance premium tax credit by letting the insurance marketplace pay some or all of your estimated premium tax credit amount to your insurance company.
Conclusion
The maximum premium tax credit amount is not a fixed dollar amount; it’s calculated based on your income, family size, and the cost of health insurance plans in your area to make insurance affordable based on these factors. Remember that a raise during the calendar year may result in a lowered APTC.
See Also
No Medical Exam Life Insurance for Seniors
Is Long Term Disability Taxable
Is Medical Insurance Tax Deductible
Are Medical Expenses Tax Deductible
Follow us