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Premium Tax Credits - Trick or Treat?

Take this quick quiz:

1.   Did you purchase your 2014 health insurance coverage through an Exchange? 

If “No”, you can stop reading unless you are curious.

2.   If “Yes” to question 1, did you qualify for financial assistance to help offset the cost of your insurance?

If “No”, you can stop reading unless you are even more curious.

If, however, you answered “Yes” to both 1 and 2, you had better keep reading!

When you applied for your insurance over a year ago through the Exchange, you likely reported your household income and family size based on what you showed on your 2013 tax return.  Based on that information, the Exchange (i.e., Connect for Health Colorado) would have determined your eligibility for financial assistance to help pay your monthly insurance premiums. That financial assistance is now referred to as a Premium Tax Credit (PTC).

If you aren’t sure whether you qualified for the PTC, the Exchange will issue a Form 1095-A to you.  If you have not yet received it, you can logon to the Exchange and download that tax form.  It will indicate the amount, if any, of the PTC you received for 2014.  Actually, you never received the PTC; it was given to your insurance company to drive down your out-of-pocket monthly premium.

When you prepare your 2014 tax return, you will need the Form 1095-A in order to “true up” the calculation of your PTC based on the actual household income and family size as reported on your 2014 tax return.  This will be done on Form 8962, and could result in three possible outcomes – (1) more credit to offset your income taxes, (2) less credit, which means you might have to pay more tax, or (3) no change at all.

How is this even possible?  Because your edibility for the PTC was originally based off your 2013 tax return, any major changes in your circumstances for 2014 could impact that eligibility.  Marriage, divorce, winning the lottery, losing a job or moving to another state during 2014 could be among the changes that could increase or decrease the PTC you actually wind up with. 

Be sure to keep and provide us the Form 1095-A.  We’ll be available to answer questions and make the necessary calculations.


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