Get to Know: The Premium Tax Credit

Health insurance is a lot like a flashlight. You don’t always need it, but in an emergency, you’ll regret not having it. And the same goes for the Premium Tax Credit.

Unfortunately, healthcare is expensive. From regular checkups or ER visits to ongoing prescriptions, the bills can add up. And those bills can turn into serious, life-derailing medical debt. And that’s exactly why having health insurance is so important!

Unfortunately, health insurance isn’t always that much cheaper. And for those with low or moderate-income households, the costs can still be pretty overwhelming. When things like rent and food take up more of your paycheck, there’s simply less of an incentive to tack health insurance premiums onto that. Fortunately, the IRS has provided a tax credit to help make paying for your health insurance premiums just a little bit easier.

Here at Edge Financial, we think it’s important that you know and understand the tax credits you have at your disposal not only when filing your tax return, but when year-round when making all sorts of life decisions.

We’re here to walk you through the Premium Tax Credit.

The Premium Tax Credit, or PTC, is one of your most important tax tools when dealing with your healthcare costs. We’re going to explain the credit itself, who qualifies for it, and a few extra tax credit details you should keep in mind.

What is the Premium Tax Credit?

Here’s a short description of the Premium Tax Credit, straight from the IRS:

“The premium tax credit – also known as PTC – is a refundable credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace.”

In essence, the PTC is a refundable credit that helps both individuals and families cover premiums if they use the Health Insurance Marketplace.

Let’s take a second to just refresh ourselves on a key term here: refundable tax credit. Unlike a tax deduction, which only reduces your taxable income, a tax credit reduces your total tax bill. However, if a tax credit is nonrefundable, then it can only reduce your tax bill down to $0; it won’t refund you any of the remaining value of the credit. Should you end up with a $0 tax bill, a refundable tax credit will add to your tax refund!

Who qualifies for the PTC?

To qualify for the Premium Tax Credit, you’ll first need to meet a few requirements. A few of them are pretty standard as far as tax credits go, and a few are specific to the PTC.

Here they are:

• Your household income must fall within a certain range. More on this later.
• You do not file using the status Married Filing Separately. (There are some exceptions to this rule.)
• You can’t be claimed as a dependent by anyone else.
• In the same month, you or a family member:
  • Have health insurance coverage through a Health Insurance Marketplace.
  • Can’t get affordable coverage through an employer-sponsored plan that provides the minimum value.
  • Aren’t eligible for coverage through any government program. Think Medicaid, Medicare, TRICARE, or CHIP.
  • Pay any premiums that aren’t covered by advance credit payments.

If you’re unsure of any terms so far, we’re about to clear them up.

What is the Health Insurance Marketplace?

The Health Insurance Marketplace is a government resource that allows people to compare health insurance, find out information about health insurance, learn about eligibility for various government health programs, and enrolling in a health insurance plan that works for you.

What is an advance credit payment?

One unique element of the Premium Tax Credit is that it can be taken month by month or afterward on your taxes.

When you sign up for coverage through the Heath Insurance Marketplace, the amount of the PTC you qualify for will be automatically calculated. It uses information like household income and family composition, and whether you’re eligible for coverage outside the Marketplace. If you qualify, you can opt to have none of, a portion of, or all of your tax credit paid directly to your insurance company.

The potential advantage of opting to have your tax credit paid out to your insurance company is that it will defray or eliminate your monthly premium. However, if your financial or tax situation changes and you’ve continued to make payments through the tax credit, the overpayment will result in a tax bill come tax season. Read more about the details here.

Is the Premium Tax Credit right for your tax return?

You and your family’s health is important. And so is ensuring you maximize your tax savings. Now that you’ve learned about the Premium Tax Credit, we hope you feel confident in making the healthy moves for your tax return. Of course, if you qualify for the Premium Tax Credit, we’ll happily handle the details for you. Just send us a message and we’ll prepare an incredibly healthy tax return.