PTC Credit Calculation

[Burke]

I am having a hard time reconciling the logic behind this form, but maybe I don't get it. When someone goes on the Marketplace, they input their income and a screen pops up right away saying they may qualify for $XXX subsidy. Is this calculated on the income and age and family size alone? Does the "bronze plan" cost factor into it at all? When calculating the penalty on 8962, it uses the Second Lowest Cost Silver Plan to determine the result for credit eligibility. I have a client who due to actual 2014 income is being required to pay back the subsidy. If I go to the MP website and input 2014 actual income (using last year's age) it says the TP is eligible for $XXX subsidy! (It's very close to what she actually got within a few dollars). If she is eligible, why is 8962 calculating that she must pay it back?

[BP.]

What does Part III of the 1095-A look like?

[TaxGuyBill]

Is everybody on the tax return part of the Marketplace insurance? If not, that could be what is messing things up.

When they sign up for insurance, if the taxpayer doesn't indicate that the number of exemptions on the tax return is different than the number of people on the insurance policy, it results in a "repayment" of the Excess Advance Premium Tax Credit.



First, I'll get into a little explanation how things work, then I'll address your question with a POSSIBLE answer.

The "required contribution" is only based on income and the size of the "tax family" (exemptions claimed on tax return).

The "benchmark" plan is Second Lowest Cost Silver Plan (SLCSP) for the "coverage family" of specific ages, geographic location, and is based on non-tobacco use.

If the "required contribution" is less than the the "benchmark plan", the difference is the Premium Tax Credit. The Bronze plan does not factor into anything.

In other words, the income and family size determine how much a non-tobacco using family should pay for insurance for the SLCSP. If the non-tobacco cost of the SLCSP is higher than what they "should" pay, the get a credit to make up the difference. That credit is the same no matter what plan they actually choose.



Now back to your question. Note that that SLCSP is based on the "coverage family". That is the number of people actually enrolled in the Marketplace plan that are NOT eligible for other Minimum Essential Coverage (such as employer insurance or Medicaid).

If the "coverage family" is less than the "tax family" (exemptions on tax return), it results in a smaller credit. That is because the "required contribution" (what they 'should' pay) is based on the ENTIRE family, but the "benchmark plan" (based on those enrolled in the Marketplace) is smaller, so it results in a smaller credit (or no credit at all).


For example, let's say there is a family of 4, and the "required contribution" (based on income and a family of 4) is $400. Let's say that the SLCSP for a family of 4 is $800. They would get a credit of $400, because the "required contribution" (what they 'should' pay) is lower than the SLCSP.

Let's take that same example, but now let's say the two kids are in Medicaid, so only the two parents are in the Marketplace plan. The "required contribution" (based on income and a family of 4) is still $400. HOWEVER, the SLCSP is now based on a "coverage family" of 2, and let's say it's $500. Now they would only get a credit of $100.



Does that make ANY sense? Does that even pertain to your situation? If not, I'm sorry for making things even more confusing and complicated.

.

[Burke]

Well, it makes it a little clearer to me how it works (or should work.) In this case, yes, the number of family persons (1) -- single person, age 20 -- is the same as those being claimed on the tax return. And if it were not the case, it would make sense. When the MP website asks your age, does it mean your current age, age nearest birthday, or the age you will be at the end of the year? I am sure she put 19 because in August she was. She turned 20 in Dec. (However, I used 19 to see what it would tell me based on her actual 2014 income.) I need to go back and make sure I am going through the procedure correctly. The tenant next door is a benefits specialist and she has been counseling and signing up people for months. She doesn't get involved in the tax part -- we are beating a path across the hall asking each other questions.

[TaxGuyBill]

Hmmm. I guess I don't know what there is a discrepancy.


I think I remember it is based on the age at the start of the policy year. Even if that's not the case, it shouldn't change things very much (if at all).


It's possible the Marketplace is just calculating the wrong Advance credit. If you want to give me the specific numbers (income, zip code, tobacco usage, numbers on the 1095-A, etc.), I could try to help you figure it out.

[David1980]

I am having a hard time reconciling the logic behind this form, but maybe I don't get it. When someone goes on the Marketplace, they input their income and a screen pops up right away saying they may qualify for $XXX subsidy. Is this calculated on the income and age and family size alone? Does the "bronze plan" cost factor into it at all? When calculating the penalty on 8962, it uses the Second Lowest Cost Silver Plan to determine the result for credit eligibility. I have a client who due to actual 2014 income is being required to pay back the subsidy. If I go to the MP website and input 2014 actual income (using last year's age) it says the TP is eligible for $XXX subsidy! (It's very close to what she actually got within a few dollars). If she is eligible, why is 8962 calculating that she must pay it back?

Are you comparing the subsidy she would qualify for for 2015 coverage against that received for 2014 insurance? It could be this if that's the case - http://forum.thetaxbook.com/showthre...m-2014-to-2015

Except in reverse.

That is, if the SLCSP got more expensive the subsidy amount would increase from 2014 to 2015, all else the same. So you could have a situation where they underestimated 2014 income and have to pay back part of the subsidy and then for 2015 they get even more subsidy than they did for 2014 despite having higher income and having had to repay part of the 2014 subsidy.

[Burke]

Are you comparing the subsidy she would qualify for for 2015 coverage against that received for 2014 insurance? It could be this if that's the case - http://forum.thetaxbook.com/showthre...m-2014-to-2015

Except in reverse.

That is, if the SLCSP got more expensive the subsidy amount would increase from 2014 to 2015, all else the same. So you could have a situation where they underestimated 2014 income and have to pay back part of the subsidy and then for 2015 they get even more subsidy than they did for 2014 despite having higher income and having had to repay part of the 2014 subsidy.

I wondered about that, and that is probably the case, since I have to use the current website to try to figure this out.