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10-24-2017 06:46 PM - edited 10-24-2017 06:49 PM
Hello My husband and I were married August of 2016. We filled our taxes married and filing jointly for 2016 and plan to do so for 2017. For our health insurance for 2017 we both purchase through a marketplace. We did not qualify for the tax credit if we jointly got insurance so we applied for separate insurance to get the credit because we could not afford if we applied together. My question is if we keep doing it this way are we going to get penalized on our taxes? Would it be better for us to file our taxes married but sperately ? We did it the first year not knowing any better but do not want to continue if we are going to get in trouble. We are in Minnesota if that helps any. Any help would be appreciated
10-24-2017 07:42 PM
Welcome to the H&R Block community.
So when you apply for marketplace insurance whether or not you get the credit is based on the total income of everyone on your tax return, regardless of whether you file jointly or separately. If you file using the married & filing separately then you must repay every penny of the tax credit with your tax return without exception, so you'll want to file jointly.
The credit is based on income, so when you file jointly the total of both your income & your spouse's income is entered at the top of Form 8962. Then, if you have any dependents who have an income you have to add theirs to the total on Form 8962 as well. So, if your total income is $50,000 then how much premium tax credit you qualify for will be based in part on an income level of $50,000.
With two people (you and your spouse) the federal poverty line is $15,930. The way the 8962 works is that the amount you have to contribute to the cost of your premium before applying tax credit is based on what percentage of the poverty level your income is at. If your income is within 400% of the federal poverty level you'll qualify for at least some credit. So for two people with a total income of $50,000 you're at 314% of the federal poverty level.
From there, your income is multiplied by a decimal determined by a calculation that's too lengthy to explain here, but the IRS has the decimal values already figured for all income levels within 400% of the FPL and you can find them in the 8962 instructions. So for 314% of the FPL your income is multiplied by 0.0966, and $50,000 * 0.0966 is equal to $4,830. This is your annual contribution to your insurance premium before receiving tax credit. Divide $4,830 by 12 and your monthly contribution is $403.
The amount of credit for which you are eligible is the lesser of your premium amount or the amount equal to your second lowest cost silver plan premium (Forms 1095-A & 8962 Column B) less your contribution amount. So if your annual premium amount is $5,000 and your annual SLCSP premium less your annual contribution amount is equal to 6,000 - 4830 then your maximum allowable premium tax credit is $1,170.
If your combined income is higher you will be eligible for less credit. If it's lower you'll be eligible for more credit. You may be eligible for credit on the 8962 when you officially reconcile everything for the year even though you weren't eligible when you applied for insurance. All you can do when you apply for the insurance policy and get the credit is estimate your income for the year as best you can. The 8962 is what ultimately determines your credit.
So as you can see there's a lot to this, there's not really an easy answer, and I'm not done yet, but at the same time none of this is bad news and you're not going to be in trouble or anything like that although if your income is too high you may end up repaying some or all of the credit you received (that's the worst that can possibly happen).
Did either of you have marketplace insurance before you were married in 2016? If so you'll want to let me know that because there's a special calculation for the year of marriage that may save you some money if you didn't complete it. Also, if you can provide me with your income levels and the amount of premium tax credit you received I'll be able to give you an idea of where you stand on the Form 8962.
The ACA tax provisions are one of my areas of expertise, so if you have any other questions I'll be glad to help.
Senior Tax Advisor (Tampa, FL)