Reconciling Advance Payments of the Premium Tax Credit

Will you have to pay back advance payments of your Premium Tax Credit?

The Premium Assistance Tax Credit is a federal subsidy available for people and families with income that's less than four times the federal poverty line. It's intended to reimburse them for the cost of health insurance that's purchased through the Marketplace.

The credit can be paid in advance directly to your insurer to defray the cost of your premiums, or you can just go ahead and pay the premiums and collect the refund personally at tax time. The amount you're actually entitled to can be something of a guessing game if you elect advance payment. 

Reconciling Your Payments on Form 8962

You must complete and submit Form 8962 at tax time to determine whether the payments to your insurer were too little, too much, or exactly what you were entitled to receive. This means "reconciling" these advance payments by comparing the amount received on your behalf to the actual amount of the Premium Assistance Tax Credit to which you were entitled.  

You can receive any additional tax credit that's due you if the IRS paid too little in advance. You must pay back the extra amount to the IRS if it paid too much in advance. Finally, the IRS might have paid out exactly the right amount, in which case you won't owe money to the IRS but you won't receive any extra tax credit, either. 

Advance Payments of the Premium Assistance Tax Credit

The Health Insurance Marketplace estimates your Premium Tax Credit based on estimates of your household income for the year when you enroll in a health insurance plan. The actual amount of your credit isn't calculated until you submit your income information on your tax return, and the amount of health insurance premiums you received as they're reported to you and the IRS on Form 1095-A.

What You'll Need to Reconcile Your Payments...

Here's what you'll need to reconcile your payments: 

  • Your completed Form 1040: The new Form 1040 for the 2018 tax year is significantly different from that which was used in years past, so make sure you use your 2018 return if you're reconciling your payments in 2019. 
  • Form 8962: This is also a new form developed by the IRS. It was first used in the year 2017.
  • Form (or Forms) 1095-A. This is the Health Insurance Marketplace Statement, and it's another new form developed by the IRS and first used in tax year 2017. Form 1095-A is prepared by the health insurance company and should be sent to you by Jan. 31. You won't receive a Form 1095-A if you didn't purchase health insurance through the Marketplace because this form only applies to Marketplace health insurance policies. These are the only ones eligible for the Premium Tax Credit. 

...And How to Do It 

Prepare Part 1 of Form 8962. This calculates the actual amount of the Premium Assistance Tax Credit to which you were entitled. Next, fill out Part 2. This section compares and reconciles the advance payments with the actual amount of the Premium Assistance Tax Credit.

The actual amount of the Premium Assistance Tax Credit you received can be found on line 24 of Form 8962. The amount of advance payments appears on line 25.

Excess Advance Payments

You must pay the excess amount back as an additional tax if your advance payments are more than your Premium Tax Credit, but the amount might be limited. Your repayment is based on your household income above a certain threshold that correlates with the percentage of the federal poverty line your family falls within. 

Your household income as a percentage of the federal poverty line is calculated and entered on line 5 of Form 8962, and yes, it comes with instructions. 

2018 Limitations on Paying Back the Credit

Your repayment won't exceed the figures in columns 3 and 4 if your household income as a percentage of the federal poverty line is equal to or greater than the first column, but less than the second column. Column 3 is for single filers, and column 4 is for all others.

-- 200% $300 $600
200% 300% $775 $1,550
300% 400% $1,300 $2,600
400% -- Full amount Full amount

The 2018 federal poverty line figures are: 

  • $12,140 for individuals
  • $16,460 for a family of two
  • $20,780 for a family of three
  • $25,100 for a family of four 
  • $29,420 for a family of five
  • $33,740 for a family of six 
  • $38,060 for a family of seven 
  • $42,380 for a family of eight 

Multiply the amount for your family by the applicable percentages. These dollar limitations are indexed for inflation each year, so they can potentially increase in the 2019 tax year. The IRS has not yet published 2019 figures, but it can be expected to do so by year's end and prior to the 2020 filing season.