Unit 14 - The ACA And The Premium Tax Credit Flashcards
ACA
The affordable care act
Healthcare reform law enacted in 2010
Administered by the IRS
The TCJA permanently eliminated the penalty under the ACA for failing to have health insurance
Some states have their own health insurance mandate requiring taxpayers to have health coverage or pay a fee with the state
PTC
Premium tax credit
Fully Refundable tax credit
Taxpayers can purchase health insurance through the marketplace of the affordable care act to receive the premium tax credit
Designed to cover a percentage of their health insurance cost
The credit is essentially a subsidy - received in advance to Lower monthly insurance payments when enrolled through the marketplace plan
Based on a taxpayers income and is only available, will you shut the garage door, please?
APTC
Advance premium tax credit
The credit amount the taxpayer receives by consumers is based on their estimated annual household income
If taxpayers underestimate their annual income and receive more APTC then they are eligible for…
They will have to repay all or some of the credit when filing their federal tax return for that year
Repayment amount is referred to as “excess APTC”
Equals the difference between the taxpayers advance, credit payments, and the premium tax credit they are entitled to for that year
Repayment caps range from $350-$3000 depending on the taxpayers income and filing status
Excess APTC repayment caps… how is it calculated?
Repayment caps are calculated based on income as a percentage of the federal poverty line
Under 200%
* single filers – $350
* all others – $700
200% – 299%
* single filers – $900
* all others – $1800
300% – 399%
* single files – $1500
* all others – $3000
400% and above
* no cap – full repayment, all filers
How is the ACA funded?
Two taxes were instituted to help fund the ACA
The additional Medicare tax
And
Net investment income tax
How to get the premium tax credit
Two ways…
- Advance premium tax credit – taxpayer receive the credit in advance to lower monthly health insurance premiums. Paid directly to the insurance provider.
- Taxpayer can choose to pay full price for insurance through the marketplace, then receive the premium tax credit as a refundable credit on their individual tax return
Premium tax credit – how much is the amount?
The PTC is based on a sliding scale – the higher, the household income, the lower the amount of the credit
Premium tax credit eligibility requirements
- Purchase health insurance through the healthcare marketplace.
- Be a US citizen or US resident
- Be unable to get coverage from an employer or the government – cannot be enrolled in Medicare, Tricare, medical, or Medicaid.
- Not be claimed as a dependent on anyone else’s tax return.
- If married, the couple must generally file a joint return-some exceptions for MFS
- Taxpayer must meet certain household income requirements.
Household income is the total of the taxpayers MAGI, the taxpayers spouses MAGI (if filing jointly), and the MAGI of all dependents that are required to file a federal income tax return
APTC – tax return obligation
Taxpayers who receive advanced premium tax credit payments must file a tax return to reconcile the advance credit payments with the actual premium tax credit earned
This is called reconciling the advance payments
The calculation is on form 8962 – premium tax credit
If an individual received advanced payments and files their taxes electronically without including form 8962 – the IRS will reject the return
If taxpayer fails to reconcile advance payments – could be prevented from applying for marketplace, or receiving the premium tax credits the next year
Premium tax credit – changes in family size due to marriage, death, divorce, birth, or adoption
Taxpayer is supposed to report changes in circumstances to the marketplace so the amount of the advanced credit payments can be recalculated during the year
Form 1095 – A
Health insurance marketplace statement
This form is for individuals who enroll in marketplace coverage
Reports basic information about the insurance company that issued the taxpayers policy, the exchange where they enrolled, and documents the taxpayers coverage for each month
Form 1095 – B
Health coverage
This form is for employees or taxpayers whose insurance comes from a source other than the marketplace
Forum 1095 – C
Employer provided health insurance offer and coverage
Individuals who work for applicable, large employers will typically get this form
NIIT
Net investment income tax
3.8%
May apply to individuals, estates, and trust
Net investment income, filing thresholds
MFJ or QSS – $250,000
MFS – $125,000
Single or HOH – $200,000
How is NIIT calculated
What about capital gains and losses?
Tax is imposed on the lesser of
- The individuals net investment income for the year.
- Or any of the individuals MAGI for the tax year over the threshold.
The amount is multiplied by 3.8%
If the taxpayers MAGI is under the threshold – there is no tax
Capital gains are offset by capital losses
NIIT – what investment income is subject to the tax
Interest income, unless it is tax exempt like municipal bonds
Dividends
capital gains
Rental and royalty income – if passive
Nonqualified annuities
Income from trading of financial instruments or commodities
Income from businesses that are passive activities for the taxpayer – passive income or rental income from a limited partnership interest
Net investment income does not include
Earned income or pension income
Wages
Self-employment income
Social Security benefits
Veterans benefits
Unemployment compensation
Taxable alimony payments
Distributions from IRAs or qualified retirement plans
Does not apply to any gains or investment income that is excluded from gross income for regular income tax purposes
NIIT – nonresident aliens
Nonresident aliens are not subject to the net investment, income tax, even if they have US source investment income
It is only imposed on US citizens and US resident aliens.
NIIT – municipal bonds
The interest is excluded from investment income
NIIT – section 121 exclusion
Gains from the sale of a personal primary residence are excluded from gross income and not included investment income
NIIT – investment interest expense
Investment interest expense can be deducted to determine gross investment income
Which is used to arrive at net investment income
NIIT – estimated tax provisions
NIIT is subject to estimated tax
May need to adjust withholding or estimated payments to avoid underpayment penalties
NIIT – where is it reported?
Form 8960 – net investment tax
Used to compute the tax for individuals, estates, and trust
Additional Medicare tax
How much is it?
How is it calculated?
Where is it reported?
The additional Medicare tax is withheld at a rate of 0.9%
The tax only applies to earned income, like wages
The tax is assessed only on earned income in excess of the following thresholds :
- MFJ - $250,000
- MFS – $125,000
- single, HOH, or QSS – $200,000
Any earned income above the thresholds is taxed at 0.9% for the additional Medicare tax
There is no employer share of the additional Medicare tax - self-employed taxpayers cannot deduct 1/2
The tax is computed on form 8959, additional Medicare tax
Additional Medicare tax – employer requirement
An employer is required to withhold the additional Medicare tax if an employee is paid more than $200,000
Regardless of employees, filing status, or whether the employee has wages paid by another employer
