Premium tax credit

The premium tax credit (PTC) is a refundable tax credit in the United States. It is payable by the Internal Revenue Service (IRS) to eligible households that have obtained healthcare insurance by a healthcare exchange (marketplace) in the tax year. It can be paid in advance directly to a healthcare insurance company to offset the cost of monthly health insurance premiums.

The tax credit is part of a host of Affordable Care Act tax provisions, introduced by the IRS in 2014,[1][2] and is meant to extend health insurance coverage to 18 million lower and middle-income Americans.[3]

History

The eligibility criteria for the premium tax credit is determined by section 1401 of the Affordable Care Act (Obamacare). The Act was signed into law on March 23, 2010 and specified the credits are only available to individuals and families who have enrolled in a health plan offered on a healthcare exchange. On May 23, 2012, the Internal Revenue Service (IRS) adopted a regulation that said tax credits would be made available to eligible individuals who enroll in a health plan through either a state or a federally facilitated exchange.The IRS based this on their interpretation of Section 1401.

On June 11, 2012 the IRS published Internal Revenue Bulletin: 2012-24 which obtains the final regulations that amend the Income Tax Regulations (26 CFR part 1) under section 36B relating to the PTC.

Four legal challenges were filed in four different states contesting the IRS regulation. The plaintiffs in all these challenges claim that a federally run exchange does not qualify as a health plan exchange and therefore cannot dispense premium tax credits. On July 22, 2014, the Fourth Circuit Court of Appeals and the Court of Appeals for the D.C. Circuit both issued conflicting opinions, with the Fourth Circuit confirming the validity of the IRS regulation in King v. Burwell, but the D.C. Circuit rejecting its validity in Halbig v. Burwell.[4]

In November 2014 the IRS commissioner, John Koskinen, spoke at an AICPA conference. He said the IRS requested $430 million from the United States Congress to implement provisions required by the ACA. The IRS did not receive any money for this purpose and is now operating on a budget 7% lower than its 2010 budget. He mentioned two major provisions of this Act, the Premium tax credit and the individual shared responsibility payment as two new items that have to be implemented on 1040 tax forms.[5]

For the 2015 tax year 1.6 million taxpayers overestimated the amount they were supposed to receive for the advance tax premium. The average amount owing was $800, according to Politico.[6]

Eligible households

There are three factors that determine if a household is eligible to receive the PTC:

Individuals planning to use the filing status Married Filing Separately (MFS) are not eligible for the PTC.[7]

Household income

Income for the purpose of determining the eligibility for, and the amount of the PTC, is Adjusted Gross Income (AGI) modified by adding non-taxable items, such as tax-free interest, non-taxable social security benefits and tax-free foreign earned income.[8] The household income is the total of the modified AGI for all individuals in the household except those who are not required to file an income tax return.

Family size

The proposed regulations (Internal Revenue Bulletin: 2012-24 published June 11, 2012) define a taxpayer’s family as the individuals for whom a taxpayer claims a deduction for a personal exemption under section 151 for the taxable year, which may include the taxpayer, the taxpayer’s spouse, and dependents.

State of residence

The PTC is available to households whose income is between 100-400% of the Federal Poverty Level (FPL) for the tax year in the state where they reside. In some states it is only available to those whose income is between 133-400% of the FPL.

Residents of Alaska and Hawaii have their own FPL tables whereas the other 48 states share a common FPL table. The FPL tables are updated annually in January.

Amount of the PTC

There are four factors that determine the amount of the PTC:

  • Household income
  • Size of household
  • Age of individuals making up the household
  • State county of residence

Calculation of the PTC

The premium tax credit applies to households with an annual income of between 100% and 400% of the Federal Poverty Level (FPL) and is intended to limit the cost of health insurance (based on the Silver plan) to between 2% and 9.6% of the enrollee's household income, depending on income level. Those at the lower end of the income range would receive the largest tax credit (and therefore pay the lowest percentage [i.e., 2%] of their income toward the cost of insurance premiums) while those at the higher end would receive a correspondingly lower tax credit and pay a correspondingly higher percentage [i.e., up to 9.6%] of their income toward the cost of premiums.

IRS forms

The IRS introduced several new forms connected with the Premium tax credit (PTC):

  • Form 8962, the Premium Tax Credit (PTC) must be filed with a 1040 income tax return by individuals who already received advance subsidies through a healthcare exchange. The form was released by the IRS on November 17, 2014, without accompanying instructions.[9]
  • Form 8965, Health Coverage Exemptions[10][11]
  • Three forms: 1095-A, 1095-B, 1095-C will be issued, respectively, by a health exchange, insurance company or an employer to taxpayers. The taxpayer will rely on these forms for proof satisfying the individual mandate.[12] For the tax year 2014 only Form 1095-A provided by a health insurance exchange is required by the IRS. [13]

References

  1. ^ "Colorado health-insurance buyers may get smaller tax credits in 2015 – The Denver Post". Retrieved 2016-09-02.
  2. ^ "Colorado health exchange users may pay much more for insurance next year - Denver Business Journal". Retrieved 2016-09-02.
  3. ^ "Implementing Health Reform: The Premium Tax Credit Final Rule". Retrieved 2016-09-02.
  4. ^ "Supreme Court Will Hear Case On ACA Health Insurance Tax Credits - Food, Drugs, Healthcare, Life Sciences - United States". www.mondaq.com. Retrieved 2016-09-02.
  5. ^ Ebeling, Ashlea. "IRS Commissioner Predicts Miserable 2015 Tax Filing Season". Retrieved 2016-09-02.
  6. ^ "Extenders to drive week — Get ready for Microsoft vs. IRS showdown — IRS expands tax evasion crackdown to Singapore". POLITICO. Retrieved 2016-09-02.
  7. ^ "Frequently Asked Questions". Beyond the Basics. Retrieved 2016-09-02.
  8. ^ LISAK, BARRY. "New Premium Tax Credit for 2014". Retrieved 2016-09-02.
  9. ^ "IRS Releases Form for Individuals Claiming the Premium Tax Credit". www.bna.com. Retrieved 2016-09-02.
  10. ^ "Form 8965, Health Coverage Exemptions and Instructions - Obamacare Facts". Retrieved 2016-09-02.
  11. ^ https://www.irs.gov/pub/irs-pdf/f8965.pdf
  12. ^ Speculations, Great. "Obamacare Ushers In Pile Of New 2014 Tax Forms". Retrieved 2016-09-02.
  13. ^ Greene-Lewis, Lisa; Cpa, Cpa; Manager, the TurboTax Blog (2014-12-10). "How Health Care Reform Will Affect Your 2014 Taxes (The Ones You File On April 15, 2015)". The Huffington Post. Retrieved 2016-09-02.

External links

Adjusted gross income

In the United States income tax system, adjusted gross income (AGI) is an individual's total gross income minus specific deductions. Taxable income is adjusted gross income minus allowances for personal exemptions and itemized deductions. For most individual tax purposes, AGI is more relevant than gross income.

Gross income is sales price of goods or property, minus cost of the property sold, plus other income. It includes wages, interest, dividends, business income, rental income, and all other types of income. Adjusted gross income is gross income less deductions from a business or rental activity and 21 other specific items.

Several deductions (e.g. medical expenses and miscellaneous itemized deductions) are limited based on a percentage of AGI. Certain phase outs, including those of lower tax rates and itemized deductions, are based on levels of AGI. Many states base state income tax on AGI with certain deductions.

Adjusted gross income is calculated by subtracting Above-the-line deduction from gross income.

Affordable Care Act tax provisions

In 2014, the Internal Revenue Service (IRS) introduced a host of tax provisions to accommodate the Affordable Care Act.

Robert W. Wood wrote in Forbes that the relationship between tax filing and obtaining health insurance may cause mixed feelings. Some are expected to feel they have benefited, but others may feel burdened by additional costs and/or filing requirements.

Bipartisan Health Care Stabilization Act of 2017

The Bipartisan Health Care Stabilization Act of 2017 (colloquially known as the Alexander-Murray bill) is a proposed compromise reached by Senator and HELP Committee Chairman Lamar Alexander and Senator and HELP Committee Ranking Member Patty Murray to amend the Affordable Care Act to fund cost-sharing reductions subsidies. The plan will also provide more flexibility for state waivers, allow a new "Copper Plan" or catastrophic coverage for those under 30, allow interstate insurance compacts, and redirect consumer fees to states for outreach. President Trump had stopped paying the cost sharing subsidies and the Congressional Budget Office estimated his action would cost $200 billion, cause insurance sold on the exchange to cost 20% more and cause one million people to lose insurance.

Border Security, Economic Opportunity, and Immigration Modernization Act of 2013

The Border Security, Economic Opportunity, and Immigration Modernization Act of 2013 (S.744) was a proposed immigration reform bill introduced by Sen. Charles Schumer (D-NY) in the United States Senate and co-sponsored by the other seven members of the "Gang of Eight", a bipartisan group of U.S. Senators who wrote and negotiated the bill. It was introduced into the Senate of the 113th United States Congress on April 16, 2013.

The Senate Judiciary Committee held hearings on the bill in April 2013. The bill was voted out of Committee on May 21, 2013 and was placed on the Senate calendar. On June 27, 2013, the Senate passed the bill on 68-32 margin. The bill was not considered by United States House of Representatives and died in the 113th Congress.

If enacted, the bill would have made it possible for many undocumented immigrants to gain legal status and eventually citizenship. It would have increased border security by adding up to 40,000 border patrol agents. It also would have advanced talent-based immigration through a points-based immigration system. New visas had been proposed in this legislation, including a visa for entrepreneurs and a W visa for lower skilled workers. It also proposed new restrictions on H1B visa program to prevent its abuse and additional visas/green-cards for students with science, technology, engineering, and mathematics (STEM) degrees from U.S. institutions. The bill also included a $1.5 billion youth jobs program and repealed the Diversity Visa Lottery in favor of prospective legal immigrants who are already in the United States.

The non-partisan Congressional Budget Office estimated this reform bill would have reduced the U.S. fiscal deficit by US$197 billion over the next ten years and by $700 billion by 2033. Its report also states that, if the bill had been passed, U.S. wages would have been 0.1 percent lower in 2023 and 0.5 percent higher in 2033 than under current law. The Social Security Administration said that it would help add $276 billion in revenue over the next 10 years while costing only $33 billion.

Certified Capital Company

Certified Capital Companies ("CAPCOs") are generally debt lending based programs that employ future state tax credits as a subsidy to these funds. CAPCOs have been operated in the District of Columbia and eight states, including: Alabama, Colorado, Florida, Louisiana, Missouri, New York, Texas, and Wisconsin. Generally, CAPCOs sponsor their specific programs in states through legislation with the claims of economic development, job creation and retention, and certain instances, investment in specific sectors (e.g. high tech).

Cost sharing reductions subsidy

The cost sharing reductions (CSR) subsidy is the smaller of two subsidies paid under the Patient Protection and Affordable Care Act (ACA) as part of the healthcare system in the United States. The subsidies were paid from 2013 to 2017 to insurance companies on behalf of eligible enrollees in the ACA to reduce co-payments and deductibles. They were discontinued by President Donald Trump in October 2017. The nature of the subsidy as discretionary spending (i.e., subject to annual appropriation by Congress) versus mandatory (i.e., paid automatically to eligible parties) was challenged in court by the Republican-controlled House of Representatives in 2014, although payments continued when the ruling in favor of the GOP was appealed by the Obama administration. The non-partisan Congressional Budget Office (CBO) estimated that ending the payments would increase insurance premiums on the ACA exchanges by around 20 percentage points, resulting in increases in the premium tax credit subsidies, thereby adding nearly $200 billion to the budget deficits over the following decade. Critics argued the decision was part of a wider strategy to "sabotage" the ACA.

Executive Order 13813

The Executive Order Promoting Healthcare Choice and Competition, also known as the Trumpcare Executive Order, or Trumpcare, is an Executive Order signed by President Donald Trump on October 12, 2017, which directs federal agencies to modify how the Patient Protection and Affordable Care Act of the Obama Administration is implemented. The order included a directive to federal agencies to end rules forbidding employers from using health reimbursement arrangements (HRAs) to pay individual insurance premiums.In a separate announcement made shortly after the order was signed, Trump announced that he would end subsidies to health insurance companies that sell to low-income consumers through the state health insurance marketplaces.Some sources have described the effect of these executive actions as replacing Obamacare with a new healthcare regime; several days after signing the order, Donald Trump himself stated in a press conference that reporters should no longer refer to "Obamacare" because "it's gone, there is no such thing as Obamacare anymore".

Form 1040

Form 1040 (officially, the "U.S. Individual Income Tax Return") is one of three IRS tax forms (see variants section for explanations of each) used for personal (individual) federal income tax returns filed with the Internal Revenue Service (IRS) by United States residents for tax purposes.

Income tax returns for individual calendar year taxpayers are due by Tax Day, which is usually April 15 of the next year, except when April 15 falls on a Saturday, Sunday, or a legal holiday. In those circumstances, the returns are due on the next business day. An automatic extension until October 15 to file Form 1040 can be obtained by filing Form 4868.

Form 1040 consists of two full pages (79 lines in total) not counting attachments. The first page collects information about the taxpayer(s), dependents, income items, and adjustments to income. In particular, the taxpayer specifies his/her filing status and personal exemptions on this page. The second page calculates the allowable deductions and credits, tax due given the income figure, and applies funds already withheld from wages or estimated payments made towards the tax liability. At the top of the first page is the presidential election campaign fund checkoff, which allows individuals to designate that the federal government give $3 of the tax it receives to the Presidential election campaign fund. The instructions booklet for Form 1040 is 104 pages as of 2014.Altogether, over 147 million returns were filed for Form 1040 and its variants in the year 2014, 80% of which were filed electronically.

Form 1095

Form 1095 is a collection of Internal Revenue Service (IRS) tax forms in the United States which are used to determine whether an individual is required to pay the individual shared responsibility provision. Individuals can also use the health insurance information contained in the form/forms to help them fill out their tax returns. The individual forms are Form 1095-A "A Health Insurance Marketplace Statement", Form 1095-B "Health Coverage", and Form 1095-C "Employer-Provided Health Insurance Offer and Coverage". Individuals may receive one or multiple versions of Form 1095.

Health care prices in the United States

Health care prices in the United States describes market and non-market factors that determine pricing, along with possible causes as to why prices are higher than other countries. Compared to other OECD countries, U.S. healthcare costs are one-third higher or more relative to the size of the economy (GDP). According to the CDC, during 2015 health expenditures per-person were nearly $10,000 on average, with total expenditures of $3.2 trillion or 17.8% GDP. Proximate reasons for the differences with other countries include: higher prices for the same services (i.e., higher price per unit) and greater use of healthcare (i.e., more units consumed). Higher administrative costs, higher per-capita income, and less government intervention to drive down prices are deeper causes. While the annual inflation rate in healthcare costs has declined in recent decades; it still remains above the rate of economic growth, resulting in a steady increase in healthcare expenditures relative to GDP from 6% in 1970 to nearly 18% in 2015.

Health insurance marketplace

In the United States, health insurance marketplaces, also called health exchanges, are organizations in each state through which people can purchase health insurance. People can purchase health insurance that complies with the Patient Protection and Affordable Care Act (ACA, known colloquially as "Obamacare") at ACA health exchanges, where they can choose from a range of government-regulated and standardized health care plans offered by the insurers participating in the exchange.

ACA health exchanges were fully certified and operational by January 1, 2014, under federal law. Enrollment in the marketplaces started on October 1, 2013, and continued for six months. As of April 19, 2014, 8.02 million people had signed up through the health insurance marketplaces. An additional 4.8 million joined Medicaid. Enrollment for 2015 began on November 15, 2014 and ended on December 15, 2014.Private non-ACA health care exchanges also exist in many states, responsible for enrolling 3 million people. These exchanges predate the Affordable Care Act and facilitate insurance plans for employees of small and medium size businesses.

IRS tax forms

Internal Revenue Service (IRS) tax forms are forms used for taxpayers and tax-exempt organizations to report financial information to the Internal Revenue Service of the United States. They are used to report income, calculate taxes to be paid to the federal government, and disclose other information as required by the Internal Revenue Code (IRC). There are over 800 various forms and schedules. Other tax forms in the United States are filed with state and local governments.

Patient Protection and Affordable Care Act

The Patient Protection and Affordable Care Act (PPACA), often shortened to the Affordable Care Act (ACA) or nicknamed Obamacare, is a United States federal statute enacted by the 111th United States Congress and signed into law by President Barack Obama on March 23, 2010. Together with the Health Care and Education Reconciliation Act of 2010 amendment, it represents the U.S. healthcare system's most significant regulatory overhaul and expansion of coverage since the passage of Medicare and Medicaid in 1965.The ACA's major provisions came into force in 2014. By 2016, the uninsured share of the population had roughly halved, with estimates ranging from 20 to 24 million additional people covered during 2016. The increased coverage was due, roughly equally, to an expansion of Medicaid eligibility and to major changes to individual insurance markets. Both involved new spending, funded through a combination of new taxes and cuts to Medicare provider rates and Medicare Advantage. Several Congressional Budget Office reports said that overall these provisions reduced the budget deficit, that repealing the ACA would increase the deficit, and that the law reduced income inequality by taxing primarily the top 1% to fund roughly $600 in benefits on average to families in the bottom 40% of the income distribution. The law also enacted a host of delivery system reforms intended to constrain healthcare costs and improve quality. After the law went into effect, increases in overall healthcare spending slowed, including premiums for employer-based insurance plans.The act largely retains the existing structure of Medicare, Medicaid, and the employer market, but individual markets were radically overhauled around a three-legged program. Insurers in these markets are made to accept all applicants and charge the same rates regardless of pre-existing conditions or sex. To combat resultant adverse selection, the act mandates that individuals buy insurance and insurers cover a list of "essential health benefits". However, a repeal of the individual tax mandate, passed as part of the Tax Cuts and Jobs Act of 2017, became effective on January 1, 2019. To help households between 100–400% of the Federal Poverty Line afford these compulsory policies, the law provides insurance premium subsidies. Other individual market changes include health marketplaces and risk adjustment programs.

Since being signed into law in 2010, the PPACA has faced strong political opposition, calls for repeal (from Republicans) and numerous legal challenges; its enactment is considered to be a catalyst for the Tea Party movement. In National Federation of Independent Business v. Sebelius, the Supreme Court ruled that states could choose not to participate in the ACA's Medicaid expansion, although it upheld the law as a whole. The federal health exchange, HealthCare.gov, faced major technical problems at the beginning of its rollout in 2013. In 2017, a unified Republican government attempted but failed to pass several different partial repeals of the ACA. The law spent several years opposed by a slim plurality of Americans polled, although its provisions were generally more popular than the law as a whole, and the law gained majority support by 2017.

Political positions of Donald Trump

The political positions of United States President Donald Trump (sometimes referred to as Trumpism) have frequently changed.

Trump has proposed sizable income tax cuts and deregulation consistent with conservative (Republican Party) policies, along with significant infrastructure investment and protection for entitlements for the elderly, typically considered liberal (Democratic Party) policies. His anti-globalization policies of trade protectionism cross party lines. Trump has said that he is "totally flexible on very, very many issues." Trump's signature issue is immigration, especially illegal immigration, and in particular building or expanding a border wall between the U.S. and Mexico. As of October 2016, Trump's campaign had posted fourteen categories of policy proposals on his website, which have been since removed. During October 2016, Trump outlined a series of steps for his first 100 days in office.Trump's political positions, and his descriptions of his beliefs, have often been inconsistent. Politico has described his positions as "eclectic, improvisational and often contradictory." According to an NBC News count, over the course of his campaign Trump made "141 distinct shifts on 23 major issues." Fact-checking organizations reported that during the campaign, Trump made a record number of false statements and lies compared to other candidates, a pattern that has continued — and further increased— since in office.

Premium

Premium may refer to:

Premium (marketing), a promotional item that can be received for a small fee when redeeming proofs of purchase that come with or on retail products

Risk premium, the monetary difference between the guaranteed return and the possible return on an investment

Premium segment / Premium pricing high-price brands or services in marketing, e.g.:

Premium television, a class of subscription-based television service

Premium station, a class of railway stations on Metlink in Melbourne

Premium Outlets, a brand of shopping malls

Premium-Cola, a brand of cola from Germany

Premium lager

Premium-rate telephone number

Premium Saltines, a Nabisco brand of saltine crackers

Premium tax credit, a refundable tax credit in the United States, part of a host of Affordable Care Act tax provisions

Insurance premium

Deposit premium

Premium Bond, a type of bond available in the United Kingdom

a grade of gasoline with the highest octane rating

Buyer's premium, a charge to be paid in addition to the cost of an item

Premium (film), a 2006 film starring Dorian Missick and Zoe Saldana

Silver plan

Silver plan may refer to:

An offering of the United States' Patient Protection and Affordable Care Act defined as covering 70 percent of out-of-pocket costs

That offering as qualifying a household for cost-sharing subsidies under Affordable Care Act tax provisions

That offering as basis for calculation of a premium tax credit

A proposed offering of the un-passed 2009 House Bill 3962, known as the Affordable Health Care for America Act

A digital phone plan by Full Channel

A meal plan offered by the College of Saint Rose

An affiliation level launched in May 2009 by NBCUniversal Television Group

Tax credit

A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state. It may also be a credit granted in recognition of taxes already paid or, as in the United Kingdom, a form of state support.

Young invincibles

Members of the United States population between the ages of 18 and 29 who decide that it is in their financial best interest to forgo health insurance are sometimes referred to as young invincibles by the insurance industry, a term coined to express the idea that the young demographic perceives themselves as immune to sickness and injury. The argument is that these individuals are young and in good health, so they have a low risk of experiencing substantial health issues that would lead to large amounts of spending on health care. Further, this group tends to have a mentality of “it won’t happen to me” with regards to most causes of injury. Together, these beliefs lead to the young invincibles not purchasing insurance.

Key articles
Provisions
Constitutional challenges
Health insurance marketplaces
Federal insurance exchange
Other reform proposals
from the 111th Congress
See also

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