Form 8962 (Premium Tax Credit) and Related Form 1095-A (Health Insurance Marketplace Statement)
As we approach the 2015 filing season, now is a good time to clarify how the new Form 8962 (Premium Tax Credit) is laid out and how the Form 1095-A (the information an individual will receive from the Marketplace) is related to the calculation of the premium tax credit for Tax Year 2014.
Form 1095-A (Health Insurance Marketplace Statement)
Any taxpayer who obtained their health insurance through a federal or state exchange (Marketplace) will receive Form 1095-A (Health Insurance Marketplace Statement) in the mail by January 31, 2015. The information on this form will be used to calculate the Premium Tax Credit, especially if the individual received assistance in paying for their health insurance premiums (advance premium tax credit).
Since this information return looks very different from a W-2 or 1099 that an individual is used to receiving, some education for your customers will be necessary to ensure that they understand what Form 1095-A is for and the importance for them to keep it and include it with the rest of their tax information when they have their 2014 federal tax return completed.
If the taxpayer loses the Form 1095-A, a copy may be obtained from the Marketplace where they received their health insurance.
The Form 1095-A (Health Insurance Marketplace Statement) will show the taxpayer the following information:
•Advance premium tax credit (subsidy) they received (if any) to help pay for their monthly premiums. This is shown by month in Part III along with the total for the year. The information reported in Part III will be used to complete Form 8962 (Premium Tax Credit), Part 2 (Premium Tax Credit Claim and Reconciliation of Advance Payment of Premium Tax Credit).
•Health insurance coverage information including a listing of all members of the household who were covered.
Form 8962 (Premium Tax Credit)
This form will be used by any taxpayer who obtained their insurance through the Marketplace and are eligible for the premium tax credit. In most cases, the taxpayer will have received an advance premium tax credit (subsidy) during the year to help pay their monthly health insurance premiums.
It is important to remember that any taxpayer who received a subsidy must complete Form 8962 and reconcile the calculated premium tax credit based on their actual 2014 income and family size with the advance premium tax credit (subsidy) that they received during the year. Also remember that the subsidy went directly to the insurance company and not the taxpayer.
If the taxpayer is required to include the Form 8962 (Premium Tax Credit) with their return and they do not, the following will occur:
•The IRS will not complete processing the return until they receive the Form 8962. This means their refund will be delayed and they will receive a notice from the IRS requesting the Form 8962 be completed and sent to them.
•The taxpayer can be denied an advance of the premium tax credit (subsidy) in future years.
See the current draft of Form 8962 to see what it looks like and how the credit is calculated.
To recap, any individual who obtained their health insurance through the marketplace will receive a Form 1095-A (Health Insurance Marketplace Statement) in the mail by January 31, 2015. If they opted (as most individuals will have done) to receive an advance premium tax credit (subsidy) to help pay for their monthly health insurance premiums, that information will be reported on the Form 1095-A which must be included on Form 8962(Premium Tax Credit) as part of the calculation of their premium tax credit and included with their 2014 federal individual income tax return.
Finally, remember that the calculation of the Premium Tax Credit is a three-step process as follows:
•Step 1 – Calculate the actual premium tax credit for 2014 based on the taxpayer’s 2014 income and family size.
•Step 2 – Enter the advance premium tax credit that the taxpayer received each month of 2014.
•Step 3 – Subtract the advance premium tax credit from the calculated premium tax credit which will result in a:
•Refundable credit if the calculated credit is greater than the total advance premium tax credit (which will be reported on Form 1040, line 69); Or
•Additional Tax if the total amount of advance premium tax credit is greater than the calculated premium tax credit (which will be reported on Form 1040, line 46).