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Calculating the Premium Tax Credit

Beginning 2014 certain taxpayers are eligible to receive the premium tax credit (PTC) allowed by §36B. Generally, a taxpayer whose household income is below 400% of the federal poverty level (FPL) is lawfully present in the U.S. and not eligible to participate in Medicaid or an employer plan qualifies. For a family of four in all states except Hawaii and Alaska, 400% of the FPL is $94,200.

At a glance, the credit is the lesser of the amount paid for premiums or the adjusted monthly premium from a benchmark plan in the excess of a percentage of the taxpayer’s household income. This limitation prevents the taxpayer from choosing a plan lower than the benchmark and receiving the PTC in excess of what is actually paid. The benchmark plan is the second lowest cost silver plan in that taxpayer’s area, since regions can differ in cost. Unless the taxpayer is single and does not claim anyone as a dependent, the coverage must be for a family.

The percentage of income depends on the percentage of the FPL. For example, 200% of the FPL is 6.3%. If a single person living in Illinois earns 200% of FPL, which is $22,980, the percentage is 6.3% of $22,980, or $1,448. If a silver plan in the market costs $4,000, the taxpayer will receive the lesser of $2,552 ($4,000 - $1,448) or the actual amount paid for premiums as a credit. Use this in part of your planning tools and offering value added services.

Featured in the TAXPRO Weekly - August 15, 2013

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