No matter what is uncertain in life, it is certain that taxes will have to be filed every year. You will have to set aside time to collect your financial and medical insurance forms.
Naturally, you may have numerous queries regarding what paperwork is needed for health insurance and taxation. Are you curious about who is eligible to be claimed as a dependent on someone’s taxes and how health insurance works, what is meant by the term “premium tax credit,” or if you are able to receive a tax credit for having health insurance for a small business?
The health insurance system can feel complicated. Including taxes could possibly lead to additional questions regarding how health insurance will affect your taxes. The positive outcome is that gaining comprehension about significant elements of health insurance, tax forms, and premium tax credits grants you clarification.
If you have health insurance through an employer, you will need to fill out a separate health insurance tax form than if you have health coverage provided by a small business. In this piece, we will analyze when you should expect to obtain the pertinent tax forms and ascertain whether you are eligible for a premium tax return or not.
What is a Premium Tax Credit?
The Affordable Care Act contains a tax incentive for small business owners to either offer health insurance to their staff members for the first time or hold on to the health coverage which they already have. Tax credits are taken away directly from an individual or company’s tax burden, hence they lower the taxes individuals and companies pay, trade-off of one dollar per dollar.
How The Small Business Health Insurance Tax Credit Works
Small businesses that pay at least fifty percent of the expenses related to individual health care coverages for their staff members are eligible for a health insurance tax break. If you satisfy the criteria, you may receive a credit up to 50% of the health insurance premiums spent on the workers in your business, excluding any you personally spent on yourself as the business operator.
To be eligible for the small business health insurance tax credit, you must:
- Have fewer than 25 full-time equivalent employees
- Have average wages that are lower than $56,00 (IRS indexes average wage for inflation and it changes each year)
- Pay these premiums using an IRS-qualified arrangement — generally an arrangement that requires you to pay a uniform percentage (not less than 50%) of the premium cost for each enrolled employee’s health insurance coverage
If you own your own business (one-person ownership structure or a limited liability corporation with just one member) and made a profit, you are eligible for a tax deduction for yourself, your partner, and any dependents. The difference between a tax deduction and a tax credit is that a deduction decreases the amount of taxable money you possess; thus, how valuable the deduction is is subject to the taxpayer’s top tax rate, which increases with the amount of earnings.
A deduction is obtainable for self-employed individuals when it comes to the costs of medical, dental and long-term care insurance policies. These expenses can be subtracted from your total self-employment gross income.
What Forms Should You Use on Your Taxes?
You will need to fill out various forms when you report your health insurance on your taxes. It is important to note that these forms will vary, based on:
- How you received your health insurance (e.g., from a marketplace or from an employer or union),
- If applicable, the type of health plan you purchased, and
- If you had a marketplace plan and used premium tax credits to lower your insurance costs throughout the year.
Form 1095-A, Health Insurance Marketplace Statement is necessary if you have bought medical insurance from either a state or private insurance provider. The shape will have the data that is required for you to fulfill Form 8962, which is applied to receive a premium tax credit.
You must fill out Form 1095-A for every insurance policy you possess. Our personnel can assist you with inquiries that you may have concerning the Form 1095-A when you collaborate with eHealth to acquire your medical insurance.
You will likely receive Form 1095-B from your health insurance provider indicating that you, along with your family, were all provided health care coverage for some or all of the year. The form isn’t usually part of your tax filing; however, it has important details which will be useful for completing your taxes correctly.
Your employer or union will provide you with Form 1095-C if they granted you health coverage for some or all of the year. This document, similar to Form 1095-B, contains pertinent details required to file taxes accurately; it is not necessary to submit it together with your tax return.
Completing Form 8941 is necessary to figure out the credit for health insurance premiums for smaller employers. To find out how to correctly fill out Form 8941, consult the Instructions PDF.
If you would like to know more about the health insurance documents to watch out for when filing taxes, check out the IRS website.
What does It Mean to “Reconcile” Your Premium Tax Credit?
If you bought a health insurance policy from either a private business or the government and got a federal discount, you will have to correct your premium tax credit. To do this you will complete the following steps.
- Write down the amount you used to lower your monthly premium costs throughout the year.
- Based on your final income for the year, calculate the actual amount of financial aid that you qualified for in 2021.
- Compare the figure from Step 1 with the figure from Step 2. If there is a difference in the figures from Step 1 and Step 2, then you will need to either pay additional funds, or receive a tax refund.
Form 1095-A will make it simple for you to go through the first three steps in filing, making sure that you correctly figure out if you have to pay additional taxes or will be receiving a tax refund.
Don’t forget: If you neglected to apply for premium tax credits to which you were entitled during 2020, you must submit Form 8962 to obtain your tax refund!
Who is Eligible for The Premium Tax Credit?
To receive the premium tax credit for coverage starting in 2023, a marketplace enrollee must meet the following criteria:
- Have a household income at least equal to the Federal Poverty Level (FPL), which for the 2023 benefit year will be determined based on 2022 poverty guidelines: (Table 1)
- Not have access to affordable coverage through an employer (including a family member’s employer)
- Not be eligible for coverage through Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), or other forms of public assistance
- Have U.S. citizenship or proof of legal residency (Lawfully present immigrants whose household income is below 100% FPL can also be eligible for tax subsidies through the Marketplace if they meet all other eligibility requirements.)
- If married, must file taxes jointly in order to qualify
For the premium tax credit, the definition of house income is the Modified Adjusted Gross Income (MAGI) of the taxpayer, their spouse, and any dependents. The MAGI reckoning incorporates pay, wages, income attained from abroad, interest, dividends, and Social Security benefits.
If the amount the employer requests employees to pay for coverage is less than 9.12 percent of their total household income, it is deemed affordable. The employer’s insurance must meet the lowest accepted rate of 60% or more, which compares to the amount that a bronze policy pays for totaled health expenditures on behalf of the insured.
The scheme must set an upper limit on out-of-pocket costs for customers to a maximum of $9,100/$18,200 per year in 2023. Lowest-cost plans must also offer sizeable coverage for doctor’s visits and stays in a hospital. Individuals who are offered employer-sponsored insurance that does not comply with one or both of the requirements are able to obtain subsidies from the Marketplace if the said people meet the criteria already mentioned.
In the past, around 5 million individuals who were dependent on family members were identified as being limited by what is known as the “family glitch”, but beginning in 2023, new regulations have been put in place that permit relatives with expensive offers to acquire subsidized coverage through the exchange.
In 2023, if the cost of family coverage is greater than 9.12 percent of household income, dependents have the option to get subsidized exchange coverage while the employee retains employer coverage.
In states that have taken advantage of the ACA, those adults with an income within 138% of the Federal Poverty Line usually qualify for Medicaid and are ineligible for Marketplace assistance.
In states without the Medicaid extension, adults with a salary at 100% of the Federal Poverty Level can be approved for Marketplace allowance, but those with a lesser income cannot be given tax relief and typically cannot become eligible for Medicaid unless they qualify for other state eligibility requirements.
KFF has predicted that there are 2.2 million US citizens living in areas that do not offer the extension of healthcare benefits.
An allowance is provided in the regulations on claiming tax credits for adults with an income beneath the poverty rate if they are particular lawfully present immigrants. Lawfully present immigrants, other than pregnant women, must have resided in the United States for a period of no less than five years in order to meet Medicaid eligibility requirements set forth by the federal government.
Immigrants who have not been eligible for Medicaid for the full five years, but who would have been qualified, could take advantage of tax credits provided in the Marketplace. A person with an income below 100 percent of the poverty line will be considered as if they are earning the same amount as the poverty level when determining their eligibility for tax credits.
Individuals who are not in the country legally can not sign up for medical plans through the marketplace, get tax credits as a result, or get non-urgent Medicaid or CHIP.
What Amount of Premium Tax Credit is Available?
The premium tax credit reduces the amount that must be paid for the “benchmark” or second-cheapest silver plan available through the Marketplace for the individual. The amount each person has to pay is determined by their income level. At an income of 150% FPL or less, there are no fees required, while households that have an income of 400% FPL or above will need to pay 8.5% of their total income in 2023 (as seen in Table 2).
The Inflation Reduction Act has specified the amount of the American Rescue Plan Act subsidies to be extended up until the end of 2025 as a temporary measure.
The percentage of contribution people had to pay pre-ARPA ranged from 2% of their income for those whose income was slightly more than the poverty line to 10% of income for those who were just under 400% of the Federal Poverty Level. People who had an income greater than 400% of the Federal Poverty Level were not able to obtain premium tax credits before the ARPA was implemented.
The tax credit is determined by subtracting the individual’s necessary payment from the expense of the standard plan. So, to offer an example, if the basic plan requires a yearly payment of $6,000, then people making 150% of the Federal Poverty Level do not have to provide any money as their contribution, leading to a tax credit of $6,000.
If the yearly income of someone is equal to 250% of the Federal Poverty Level, then they will have to pay 4% of $33,975 ($1,359) in contribution. Subsequently, the individual will qualify for a Premium Tax Credit amounting to $4,641.
The premium tax credit can be utilized to help pay for any insurance plan sold through the Marketplace that is not classified as catastrophic coverage. The amount of the tax credit stays consistent, which means that if someone chooses to buy a plan which is more expensive than the reference plan, they will required to pay the added price.
If someone opts for a cheaper option, such as the least expensive silver plan or a bronze plan, their tax credit will pay for a bigger portion (or all) of the plan’s fee, meaning their payment for the plan would be zero. When the tax credit is greater than the price of a plan, it reduces the premium to nothing and any excess tax credit is not used.
How does Good Recordkeeping Help at Tax Time?
Filing taxes is easier when you keep good records. Be sure to get the information from your health insurance company to fill out your Form 1095-A correctly. You may have to adjust your premium tax credit and fill out Form 8962 in order to get your tax refund, should you be applicable.
By maintaining accurate documentation, it is easier for you to comprehend the effect that your individual healthcare plan has on your taxes when the year comes to a close.