In this way, you avoid tax time surprises with the health insurance premium credit

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The Health Insurance Premium Tax Credit is designed to help low-income Americans pay for insurance. However, if you’re not careful, you could owe money at tax time.

The refundable credit is available to any person or household who has taken out health insurance through one of the health exchanges established under the Patient Protection and Affordable Care Act, commonly known as Obamacare.

Anyone earning less than 400% of official federal poverty is eligible for the credit to help people not insured through an employer-sponsored plan. According to the Kaiser Family Foundation, by the end of 2019, 11.41 million people had taken out insurance through one of the health insurance exchanges. Of these individuals, 8,515,524 people received total annual credit of $ 52.3 billion, with the average monthly credit being $ 512 per person.

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The eligible loan for an individual is based on their income, where they live and the size of their household. The less money you make and the larger your family, the greater your credit. For 2021, the federal poverty line is $ 12,280 for an individual and $ 26,500 for a family of four living in any of the 48 contiguous states or the District of Columbia. It’s $ 33,130 for a family of four in Alaska and $ 30,480 for a family in Hawaii.

“It’s a bit of a surprise how much money you can make and still qualify for the loan,” said Tom Gibson, a Vero Beach, Fla.-Based CPA with tax savings professionals. Based on the 2019 poverty line of $ 25,750, a family of four with incomes up to $ 103,000 was eligible for the loan. The monthly premium for a silver plan purchased on the Florida Health Insurance Exchange was $ 1,380.

Gibson calculated that a family living on the poverty line this year would receive a monthly loan of $ 1,336 and support $ 44 per month. A family at 390% of the threshold would receive $ 575 in credit and would be responsible for covering $ 805 of the monthly premium.

Individuals eligible for the credit can get the full annual amount at the end of the year, which will lower the taxes owed or increase their refunds. However, when individuals sign up for the plan, most will arrange for the prepayment of the loan to be applied to their monthly premiums due.

While prepayments are convenient for plan participants, they can change your ultimate tax liability significantly as your circumstances change over the course of the year.

“If you’ve received a raise, or your spouse has a part-time job, or a loved one has left the household, it will affect the amount of credit you’re entitled to,” Gibson said. “If prepayments were made on your premiums, you could run into debt at the end of the year.”

On the other hand, if you had a child last year, were laid off, or your income has otherwise decreased – a significant opportunity for many lower-income Americans last year – you may be eligible for additional credit on your tax return that year.

If you don’t like surprises at the time of your tax return, it pays to report any changes in your income and family circumstances promptly to ensure that the prepayments are exactly in line with your life profile. Updates can be made through an account on the HealthCare.gov website, by phone at your marketplace call center, or in person.

If you received prepayments for the credit during the year, you will need to reconcile the amounts against the amounts you will ultimately be entitled to by completing Form 8962 on your tax return.

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