If you purchased insurance using the federal or state run insurance exchange, chances are you may have received a subsidy to offset your monthly payments. The purpose of this is to make your payments more affordable.
Once you become a part of the exchange, it’s important to report any increases or decreases in household income. You also want to report if you have a new child, got married or were divorced. For a complete list of life events that could make a difference in your coverage or how much you pay, go to Healthcare.gov – Report income or life changes.
There are 2 ways to claim your credit.
- Have it or part of it paid directly to your insurance company to lower your payments.
- Wait and claim the credit on your tax return.
Either way, you must file a federal tax return.
The exchanges estimate how much your premium tax credit will be based on the size of your family and estimated income. This is called MAGI – modified adjusted gross income.
You must include salary, tips, net income from self-employment or business, unemployment, Social Security payments, disability payments and alimony. Not included is child support, supplemental security income, veteran’s disability payments or workers compensation.
All of the above may change at any time. That’s why it’s important to report any change in your situation to the exchanges to make sure you receive the proper tax credit.
You will receive a statement from the health-care exchange that will show you the amount of your premiums and tax credits by Jan 31st. This allows you to balance advance credit payments made by the exchange with your actual credit.
When you file the following year, you must subtract any advanced payments that you received during the tax year from the amount calculated on your tax return. You will either receive a refund or a decrease in the amount of taxes owed.
If you receive too much of a subsidy, you may need to pay back part or the entire excess amount.
If your income was too high to qualify for subsidies and you received credits, the IRS will ask you to repay any payments that were made to you as an income tax liability.
Your tax preparer will be able to help you deal with any issues you may have regarding The ACA.
Please contact us today to learn more