Unit 14 - The ACA And The Premium Tax Credit

Question 1

ACA

Answer 1

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

Question 2

PTC

Answer 2

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?

Question 3

APTC

Answer 3

Advance premium tax credit

The credit amount the taxpayer receives by consumers is based on their estimated annual household income

Question 4

If taxpayers underestimate their annual income and receive more APTC then they are eligible for…

Answer 4

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

Question 5

Excess APTC repayment caps… how is it calculated?

Answer 5

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

Question 6

How is the ACA funded?

Answer 6

Two taxes were instituted to help fund the ACA

The additional Medicare tax

And

Net investment income tax

Question 7

How to get the premium tax credit

Answer 7

Two ways…

1. Advance premium tax credit – taxpayer receive the credit in advance to lower monthly health insurance premiums. Paid directly to the insurance provider.
2. 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

Question 8

Premium tax credit – how much is the amount?

Answer 8

The PTC is based on a sliding scale – the higher, the household income, the lower the amount of the credit

Question 9

Premium tax credit eligibility requirements

Answer 9

1. Purchase health insurance through the healthcare marketplace.
2. Be a US citizen or US resident
3. Be unable to get coverage from an employer or the government – cannot be enrolled in Medicare, Tricare, medical, or Medicaid.
4. Not be claimed as a dependent on anyone else’s tax return.
5. If married, the couple must generally file a joint return-some exceptions for MFS
6. 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

Question 10

APTC – tax return obligation

Answer 10

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

Question 11

Premium tax credit – changes in family size due to marriage, death, divorce, birth, or adoption

Answer 11

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

Question 12

Form 1095 – A

Answer 12

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

Question 13

Form 1095 – B

Answer 13

Health coverage

This form is for employees or taxpayers whose insurance comes from a source other than the marketplace

Question 14

Forum 1095 – C

Answer 14

Employer provided health insurance offer and coverage

Individuals who work for applicable, large employers will typically get this form

Question 15

NIIT

Answer 15

Net investment income tax

3.8%

May apply to individuals, estates, and trust

Question 16

Net investment income, filing thresholds

Answer 16

MFJ or QSS – $250,000

MFS – $125,000

Single or HOH – $200,000

Question 17

How is NIIT calculated

What about capital gains and losses?

Answer 17

Tax is imposed on the lesser of

1. The individuals net investment income for the year.
2. 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

Question 18

NIIT – what investment income is subject to the tax

Answer 18

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

Question 19

Net investment income does not include

Answer 19

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

Question 20

NIIT – nonresident aliens

Answer 20

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.

Question 21

NIIT – municipal bonds

Answer 21

The interest is excluded from investment income

Question 22

NIIT – section 121 exclusion

Answer 22

Gains from the sale of a personal primary residence are excluded from gross income and not included investment income

Question 23

NIIT – investment interest expense

Answer 23

Investment interest expense can be deducted to determine gross investment income

Which is used to arrive at net investment income

Question 24

NIIT – estimated tax provisions

Answer 24

NIIT is subject to estimated tax

May need to adjust withholding or estimated payments to avoid underpayment penalties

Question 25

NIIT – where is it reported?

Answer 25

Form 8960 – net investment tax

Used to compute the tax for individuals, estates, and trust

Question 26

Additional Medicare tax

How much is it?
How is it calculated?
Where is it reported?

Answer 26

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

Question 27

Additional Medicare tax – employer requirement

Answer 27

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