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Chapter 37
Premium Tax Credit (PTC)

Introduction

Established under the Affordable Care Act, the Premium Tax Credit (PTC) became available starting in 2014 as an advanceable and refundable tax credit designed to help eligible individuals and families with low or moderate income afford health insurance. The credit is only available for health insurance purchased through the Health Insurance Marketplace (otherwise referred to as the “exchange”). The credit is available whether the insurance is purchased on a state Marketplace or the Federal Exchange.

Recognizing the relatively high cost of health insurance, the PTC serves as a subsidy for low to moderate income taxpayers who are required to have health insurance and are not being offered an “affordable” plan at work. If you expect to be eligible for the PTC, you can choose to have the credit paid in advance directly to your insurance company to lower what you pay for your monthly premiums. As an alternative, you can claim all of the credit when you file your tax return for the year. If you choose to have the credit paid in advance, you will reconcile the amount paid in advance with the actual computed credit that you are entitled to when you file your tax return. While there is a cash flow benefit to receiving the advanced premium credit as your monthly premium comes due, it does expose you to the risk that the amount advanced was more than the amount that you are entitled to and you will owe the excess credit back when you file your tax return.

Reminders

Report changes in circumstances when you reenroll in coverage and during the year. If advance payments of the premium tax credit (APTC) are being paid in 2018 for an individual in your tax family (described later) and you have had certain changes in circumstances (see the examples below), it is important that you promptly report them to the Marketplace where you enrolled in coverage. Reporting changes in circumstances promptly will allow the Marketplace to adjust your APTC to reflect the premium tax credit (PTC) you are estimated to be able to take on your tax return. Adjusting your APTC when you re-enroll in coverage and during the year can help you avoid owing tax when you file your tax return. Changes that you should report to the Marketplace include the following.

Changes in household income.
Moving to a different address.
Gaining or losing eligibility for other health care coverage.
Gaining, losing, or other changes to employment.
Birth or adoption.
Marriage or divorce.
Other changes affecting the composition of your tax family.

For more information on how to report a change in circumstances to the Marketplace, see healthcare.gov or your state Marketplace website.

Health coverage tax credit (HCTC). The HCTC is a tax credit that pays a percentage of health insurance premiums for certain eligible taxpayers and their qualified family members. The HCTC and the PTC are different tax credits that have different eligibility rules. If you think you may be eligible for the HCTC, see Form 8885 and its instructions or visit IRS.gov/HCTC before completing Form 8962.

TAXALERT

The HCTC and the PTC are different tax credits that have different eligibility rules. The HCTC is a tax credit that pays 72.5% of health insurance premiums for certain eligible taxpayers and their qualified family members. It can be claimed for coverage through 2019. If you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA recipient, reemployment TAA recipient, Pension Benefit Guaranty Corporation payment recipient, or qualifying family member, you may be able to take the HCTC for qualifying health insurance coverage purchased.

For 2014 and 2015, qualified health coverage purchased through a federally facilitated or state-based Health Insurance Marketplace could qualify for the HCTC. However, for 2016 and thereafter, the HCTC is no longer available for premiums paid on plans obtained through a Health Insurance Marketplace. Also, you may not be able to claim the HCTC for months when your or your spouse’s employer pays part of your premium.

Health insurance options. If you need health coverage, visit healthcare.gov to learn about health insurance options that are available for you and your family, how to purchase health insurance, and how you might qualify to get financial assistance with the cost of insurance.

You may be able to take the PTC only for health insurance coverage in a qualified health plan purchased through a Health Insurance Marketplace (also known as an exchange). This includes a qualified health plan purchased on healthcare.gov or through a state Marketplace.

This chapter provides an overview of the following.

What is the PTC.
Who can take the PTC.
Terms you may need to know.
How to claim the credit.

Useful Items

You may want to see:

Publication

974 Premium Tax Credit (PTC)

Forms (and Instructions)

1095-A Health Insurance Marketplace Statement
8962Premium Tax Credit (PTC)

What Is the Premium Tax Credit (PTC)?

Premium tax credit (PTC). The PTC is a tax credit for certain people who enroll, or whose family member enrolls, in a qualified health plan. The credit provides financial assistance to pay the premiums for the qualified health plan offered through a Marketplace by reducing the amount of tax you owe, giving you a refund, or increasing your refund amount. You must file Form 8962 to compute and take the PTC on your tax return.

Advance payment of the premium tax credit (APTC). APTC is a payment during the year to your insurance provider that pays for part or all of the premiums for a qualified health plan covering you or another individual in your tax family. Your APTC eligibility is based on the Marketplace’s estimate of the PTC you will be able to take on your tax return. If APTC was paid for you or another individual in your tax family, you must file Form 8962 to reconcile (compare) this APTC with your PTC. If the APTC is more than your PTC, you have excess APTC and you must repay the excess, subject to certain limitations (provided in Table 5 in the Instructions for Form 8962). See Alternative calculation for year of marriage next for a special rule that may reduce your excess APTC if you got married in 2017. If your PTC is more than the APTC, you can take the difference as a tax credit on your tax return, which will reduce your tax payment or increase your refund.

Note. The Marketplace determined your eligibility for and the amount of your 2017 APTC using projections of your income and your number of personal exemptions when you enrolled in a qualified health plan. If this information changed during 2017 and you did not promptly report it to the Marketplace, the amount of APTC paid may be substantially different from the amount of PTC you can take on your tax return. See Report changes in circumstances when you re-enroll in coverage and during the year, earlier, for changes that can affect the amount of your PTC.

Alternative calculation for year of marriage. If you got married during 2017 and APTC was paid for an individual in your tax family, you may want to use the alternative calculation for year of marriage, an optional calculation that may allow you to repay less excess APTC than you would under the general rules. You will determine your eligibility using the Instructions for Form 8962 and compute the alternative calculation using Pub. 974.

Who Can Take the PTC?

You can take the PTC for 2017 if you meet all the conditions under (1) and (2) below.

For at least one month of the year, all of the following were true.
1. An individual in your tax family was enrolled in a qualified health plan offered through the Marketplace on the first day of the month.
2. The individual was not eligible for minimum essential coverage for the month, other than coverage in the individual market. An individual is considered eligible for minimum coverage for the month only if he or she was eligible for every day of the month (see Minimum essential coverage, later).
3. The portion of the enrollment premiums for the month for which you are responsible was paid by the due date of your tax return (not including extensions). However, if you became eligible for APTC because of a successful eligibility appeal, see Enrollment premiums, later, for the date by which your portion of the enrollment premiums must be paid.
You are an applicable taxpayer for 2017. To be an applicable taxpayer, you must meet all of the following requirements.
1. Your household income for 2017 is at least 100% but no more than 400% of the federal poverty line for your family size (provided in Tables 1-1, 1-2, and 1-3, in the Instructions for Form 8962). See the Instructions for Form 8962 for exceptions when household income is below 100% of the federal poverty line.
2. No one can claim you as a dependent on their tax return for 2017.
3. If you were married at the end of 2017, generally you must file a joint return. However, filing a separate return from your spouse will not disqualify you from being an applicable taxpayer if you meet certain requirements described under Married taxpayers in the Instructions for Form 8962.

For more information on taking the PTC and the requirements to be an applicable taxpayer, see the Instructions for Form 8962.

Terms You May Need To Know

Tax family. For purposes of the PTC, your tax family consists of the individuals for whom you claim a personal exemption on your tax return (generally you, your spouse with whom you are filing a joint return, and your dependents). Your personal exemptions are reported on your Form 1040 or Form 1040A, line 6d. Your family size equals the number of individuals in your tax family. If no one, including you, claims a personal exemption for you and you indicated to the Marketplace when you enrolled that you would claim your own personal exemption, see Pub. 974.

Household income. For purposes of the PTC, household income is the modified adjusted gross income (modified AGI) of you and your spouse (if filing a joint return) plus the modified AGI of each individual in your tax family whom you claim as a dependent and who is required to file a tax return because his or her income meets the income tax return filing threshold. Household income does not include the modified AGI for those individuals whom you claim as dependents and who are filing a 2017 return only to claim a refund of withheld income tax or estimated tax. See the Instructions for Form 8962 to determine your household income.

Modified AGI. For purposes of the PTC, modified AGI is the AGI on your tax return plus certain income that is not subject to tax (foreign earned income, tax-exempt interest, and the portion of social security benefits that is not taxable). Use Worksheet 1-1 and Worksheet 1-2 in the Form 8962 instructions to determine your modified AGI.

Qualified health plan. For purposes of the PTC, a qualified health plan is a health insurance plan or policy purchased through a Marketplace at the bronze, silver, gold, or platinum level. Catastrophic health plans, standalone dental plans purchased through the Marketplace, and all plans purchased through the Small Business Health Options Program (SHOP) are not qualified health plans for purposes of the PTC. Therefore, they do not qualify a taxpayer to take the PTC.

DEFINITIONS

Federal poverty level (FPL) guidelines. For those who enroll in coverage through the Health Insurance Marketplace, premium tax credits will generally be available to people whose household income falls between 100% and 400% of the FPL. For 2017, the applicable range of household income lies between $12,060 and $48,240 for an individual and between $24,600 and $98,400 for a household of four. Note that these thresholds apply to the 48 contiguous states as well as the District of Columbia. The corresponding thresholds are different for Alaska and Hawaii.

Credit calculation. Premium tax credits limit the premium paid for coverage through the Marketplace for individuals and families who qualify for assistance and enroll in coverage at one of the four “metal levels.” The credit places a cap on premiums paid for health care insurance coverage based on a percentage of household income. The percentage, in turn, is based on the amount of household income in relation to the federal poverty level (FPL). The amount of the premium tax credit is equal to the lesser of:

The premium for the qualified health plan in which the individual or the family enrolls through the Marketplace; or

The premium for the second lowest-cost silver-level plan available to the individual or family through the Marketplace reduced by the individual’s or family’s share of premiums set on a sliding scale limiting the contributions as follows:

	Premium as a % of Income
Income Level	2017	2018
100%–133% of FPL	2.04% of income	2.01% of income
133%–150% of FPL	3.06%–4.08% of income	3.02%–4.03% of income
150%–200% of FPL	4.08%–6.43% of income	4.03%–6.34% of income
200%–250% of FPL	6.43%–8.21% of income	6.34%–8.10% of income
250%–300% of FPL	8.21%–9.69% of income	8.10%–9.56% of income
300%–400% of FPL	9.69% of income	9.56% of income

Minimum essential coverage. A separate tax provision requires most individuals to have qualifying health coverage, qualify for a coverage exemption, or make a payment with their tax return. Health coverage that satisfies this requirement is called minimum essential coverage. An individual in your tax family who is eligible for minimum essential coverage (except coverage in the individual market) for a month is not in your coverage family for that month. Therefore, you cannot take the PTC for that individual’s coverage for the months that individual is eligible for minimum essential coverage. In addition to qualified health plans and other coverage in the individual market, minimum essential coverage includes:

Most coverage through government-sponsored programs (including Medicaid coverage, Medicare parts A or C, the Children’s Health Insurance Program (CHIP), certain benefits for veterans and their families, TRICARE, and health coverage for Peace Corps volunteers);
Most types of employer-sponsored coverage; and
Other health coverage the Department of Health and Human Services designates as minimum essential coverage.

In most cases you are eligible for minimum essential coverage if the coverage is available to you whether or not you enroll in it. However, special rules apply to certain types of minimum essential coverage as explained in the Form 8962 instructions.

While coverage purchased in the individual market outside the Marketplace is minimum essential coverage, eligibility for this type of coverage does not prevent you from being eligible for the PTC for Marketplace coverage. Coverage purchased in the individual market outside the Marketplace does not qualify for the PTC.

For more details on minimum essential coverage, see Pub. 974. You can also check www.irs.gov/uac/Individual-Shared-Responsibility-Provision for future updates about types of coverage that are recognized as minimum essential coverage.

Enrollment premiums. The enrollment premiums are the total amount of the premiums for the month for one or more qualified health plans in which any individual in your tax family enrolled. Form 1095-A, Part III, column A, reports the enrollment premiums.

You are generally not allowed a monthly credit amount for the month if any part of the enrollment premiums for which you are responsible that month has not been paid by the due date of your tax return (not including extensions). However, if you became eligible for APTC because of a successful eligibility appeal and you retroactively enrolled in the plan, the portion of the enrollment premium for which you are responsible must be paid on or before the 120th day following the date of the appeals decision. Premiums another person pays on your behalf are treated as paid by you.

DEFINITIONS

Lack of access to minimum essential coverage. Only those individuals who don’t have access to minimum essential coverage from another source are eligible to receive premium tax credits. Generally speaking, employer-sponsored health insurance coverage will meet the definition of minimum essential coverage under the ACA. This means that most people who have access to employer-sponsored health insurance coverage, as well as the employee’s eligible spouse and dependents, won’t qualify to receive premium tax credits unless the employer-sponsored coverage is classified as “unaffordable” or fails to provide “minimum value.”

Definition of “unaffordable.” An employer-sponsored plan is considered to be unaffordable if the portion of the annual premium that the employee must pay (whether by salary reduction or other means) for self-only coverage is greater than 9.69% of household income in 2017; 9.56% of household income in 2018. Note that this same threshold applies for determining the affordability of employer-sponsored coverage for the employee’s spouse or other eligible dependents. In other words, for purposes of determining whether family members are eligible to receive premium tax credits, the cost of family coverage isn’t taken into account; the only relevant factor is whether or not the cost of self-only coverage is affordable to the employee.

How To Take the PTC?

You must file Form 8962 with your income tax return if any of the following apply to you.

You are taking the PTC.
APTC was paid for you or another individual in your tax family.
APTC was paid for an individual (including you) for whom you told the Marketplace you would claim a personal exemption and neither you nor anyone else claims a personal exemption for that individual. See Individual you enrolled for whom no taxpayer will claim a personal exemption under Lines 12 through 23—Monthly Calculation in the Instructions for Form 8962.

If any of the circumstances above apply to you, you must file an income tax return and attach Form 8962 even if you aren’t otherwise required to file. You must file Form 1040 or Form 1040A. You cannot file Form 1040EZ. For help in determining which of these forms to file, see chapter 1.

Form 1095A. You will need Form 1095-A to complete Form 8962. The Marketplace uses Form 1095-A to report certain information to the IRS about individuals who enrolled in a qualified health plan through the Marketplace. The Marketplace sends copies to individuals to allow them to accurately file a tax return taking the PTC and reconciling APTC. For coverage in 2017, the Marketplace is required to provide or send Form 1095-A to the individual(s) identified in the Marketplace enrollment application by January 31, 2018. If you are expecting to receive Form 1095-A for a qualified health plan and you do not receive it by early February, contact the Marketplace.

Under certain circumstances (for example, where two spouses enroll in a qualified health plan and divorce during the year), the Marketplace will provide Form 1095-A to one taxpayer, but another taxpayer will also need the information from that form to complete Form 8962. The recipient of Form 1095-A should provide a copy to other taxpayers as needed.

Allocating policy amounts. You need to allocate policy amounts (enrollment premiums, SLCSP premiums, and/or APTC) on a Form 1095-A between your tax family and another tax family if:

The policy covered at least one individual in your tax family and at least one individual in another tax family, and
Either:
1. You received a Form 1095-A for the policy that does not accurately represent the members of your tax family who were enrolled in the policy (meaning that it either lists someone who is not in your tax family or does not list a member of your tax family who was enrolled in the policy) or
2. The other tax family received a Form 1095-A for the policy that includes a member of your tax family.

If both 1 and 2 above apply to you, check the “Yes” box on line 9 of Form 8962. For each policy to which 1 and 2 above apply, follow the instructions in Table 3. Allocation of Policy Amounts—Line 9, in the Form 8962 instructions, to determine which allocation rule applies for that qualified health plan.

A qualified health plan may have covered at least one individual in your tax family and one individual not in your tax family if:

You got divorced during the year,
You are married but filing a separate return from your spouse,
You or an individual in your tax family was enrolled in a qualified health plan by someone who is not part of your tax family (for example, your ex-spouse enrolled a child whom you are claiming as a dependent), or
You or an individual in your tax family enrolled someone not part of your tax family in a qualified health plan (for example, you enrolled a child whom your ex-spouse is claiming as a dependent).

Form shows sections like annual and monthly contribution amount, premium tax credit claim and reconciliation of advance payment of premium tax credit and repayment of excess advance payment of the premium tax credit.

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Table of Contents for Chapter 37: Premium Tax Credit (PTC)

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