Reconciling Advance Payments of the Premium Tax Credit

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

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The Premium Assistance Tax Credit is a federal subsidy available for people and families with income that falls between one and 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 Internal Revenue Service (IRS) paid too little in advance. You must pay back the extra amount to the IRS if it paid too much in advance. If the IRS paid out exactly the right amount, you won't owe money to the IRS, but you won't receive any extra tax credit when you file, 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 is significantly different from that which was used before the passage of 2017's Tax Cuts and Jobs Act, so double-check and make sure you use the correct year's return while reconciling payments. 
  • Form 8962
  • Form (or Forms) 1095-A: This is the Health Insurance Marketplace Statement. 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. 

How to Reconcile Your Payments

The first part of Form 8962 calculates the actual amount of the Premium Assistance Tax Credit to which you were entitled. After that, you'll fill out the second part—comparing and reconciling 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. 

2020 Limitations on Paying Back the Credit

There are limitations on how much you can are expected to repay in cases where reconciliation is necessary. Check the chart below for the limitations for the 2020 tax year (taxes you'll file in 2021).

Income Greater Than Income Less Than Maximum Repayment for Single Filers Maximum Repayment for Everyone Else
-- 200% of the poverty level $325 $650
200% 300% $800 $1,600
300% 400% $1,350 $2,700
400% -- Full amount Full amount

The 2020 federal poverty line figures are:

  • $12,760 for individuals
  • $17,240 for a family of two
  • $21,720 for a family of three
  • $26,200 for a family of four 
  • $30,680 for a family of five
  • $35,160 for a family of six 
  • $39,640 for a family of seven 
  • $44,120 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 you'll have to recalculate your eligibility every year.

Article Sources

  1. Internal Revenue Service. "Eligibility for the Premium Tax Credit." Accessed Dec. 23, 2020.

  2. Internal Revenue Service. "Questions and Answers About Health Care Information Forms for Individuals (Forms 1095-A, 1095-B, and 1095-C)." Accessed Dec. 23, 2020.

  3. Internal Revenue Service. "Instructions for Form 8962," Page 16. Accessed Dec. 23, 2020.

  4. Office of Assistant Secretary for Planning and Evaluation. "Poverty Guidelines." Accessed Dec. 23, 2020.