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Advanced Premium Tax Credit

For most individuals, implementation of the Affordable Care Act (ACA) is right around the corner. This October individuals will be able to start enrolling in health insurance for 2014. Part of the process of enrolling for insurance includes determining eligibility for cost sharing subsidies, which help offset out of pocket expenses, and the premium tax credit.

The premium tax credit (PTC) allowed by ยง36B was created by the ACA to help low-income individuals afford health care coverage. Since most taxpayers with low income cannot wait until the end of the year to get this credit, the credit can be received throughout the year.

To determine the amount the taxpayer can receive as an advanced payment, the prior tax return is used during the time of enrollment. This means the determination for eligibility of the PTC in 2014 is based on the 2012 tax return. Furthermore, the 2014 tax return will reconcile the difference to determine if the taxpayer owes more tax or is due a credit. If the 2012 tax return is not accurate in determining eligibility, the taxpayer can use other documents to substantiate the changes that occurred since the return was filed.

This means that many taxpayers who did not need tax planning before can benefit from it now. It is reasonably foreseeable that many taxpayers will be stunned by the reconciliation. Unless the deadline for the individual mandate gets pushed back, just like the employer mandate, taxpayers may be asking about the PTC and requesting copies of tax returns.

Featured in TAXPRO Weekly - July 11, 2013

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