Your 1095-A Form, Explained
If you had an individual or family health insurance policy through the Marketplace, you will be receiving a 1095-A Form. Dan gets many questions each year from clients who are trying to maximize their tax return, and we would like to demystify what this means.
To explain it, we need to back up and explain a portion of the Affordable Care Act (ACA). This law did a lot of things, but what we're concerned with is the part of the law that makes health insurance affordable for many Americans earning up to a certain amount, by creating advanced premium tax credits (APTC).
Advanced Premium Tax Credits
Tax credits are just that - credits that help you with your taxes.
The ACA created this particular tax credit to pay your health insurance premiums, so you don't have to.
And it's advanced to you: you don't have to wait until 2023 to get help paying for your 2022 health insurance.
That's why this tax credit is called the Advanced Premium Tax Credit.
Many consumers overlook the APTC. They see that they pay, say, under $100 per month for health insurance and think that that's all the plan costs. Wrong. Their health insurance actually costs hundreds or thousands of dollars per month, but because of the APTC, the amount that they have to pay is much lower. So, the APTC is a good thing for many American households.
What determines the APTC?
Many factors determine a family's eligibility for the APTC, but the two factors that determine the size of the APTC are: the number of people in the tax-filing household, and the household's Adjusted Gross Income (AGI). If the family earns between 100% to 400% (or in Medicaid-expanded states, 138% to 400%) of the federal poverty level, then they are possibly eligible for an APTC.
When you apply for ACA plans on the Marketplace, first check your eligibility for the APTC. Think about how you file your taxes. If you file together with a spouse, or claim any dependents, add those family members' taxable incomes together with your own.
How does Health Insurance Effect Taxes?
In determining your eligibility for the APTC, you estimated your household income for the year. If your estimate was wrong, you may have received too much or too little help from the government to pay for health insurance, and you have to settle up that difference with the IRS as part of your tax return.
Let's use a hypothetical example: Say that you estimated your income to be $30,000 and received an APTC of $800 per month, leaving you with health insurance that costed you $75 per month. But when you filed your taxes, you actually reported a taxable income of $45,000 that reduced your APTC to $600 per month. In this example, the IRS would see that you were getting $200 per month too much, which you will have to pay back as part of your tax return.
Those are made-up numbers, but they illustrate the point. And that point is that what you pay for your health insurance is based on your estimated income, and if your estimate is wildly off the mark then it could effect your tax return. Don't panic, but at the same time, take it seriously.
What to do on your Tax Return
This is where your 1095-A Form comes in.
Take your 1095-A Form, along with your W-2s, 1099s, etc., with you to your tax professional, or wherever you file your taxes. You'll use the information on Part III, Section C of the 1095-A to complete a section of the tax return called Form 8962. https://www.irs.gov/instructions/i8962.
It's not that difficult. But it is new to many families who have had employer or group health insurance for their whole lives until now. Some individuals think that it is something that they can skip. Others fear that it is "another way the government can take peoples' money." The truth, however, is that you cannot skip it and it isn't bad - not any more bad than any other tax credit, anyway.
If you have any questions, connect with insurance specialist Dan Rhoads to gain eligibility for affordable health insurance coverage.
Please remember that we here at the Rhoads Agency are not tax professionals. Dan is a health insurance broker and an investment advisor, and is not qualified to give tax advice. Speak with a qualified CPA instead. (I can recommend CPAs in Pennsylvania, upon request)
"Affordable Care Act," Healthcare.gov Glossary. Accessed January 2022. https://www.healthcare.gov/glossary/affordable-care-act/
"Advanced Premium Tax Credit," Healthcare.gov Glossary. Accessed January 2022. https://www.healthcare.gov/glossary/advanced-premium-tax-credit/
"Adjusted Gross Income," IRS Glossary. Accessed January 2022. https://www.irs.gov/e-file-providers/definition-of-adjusted-gross-income
"IRS Form 8962 Instructions," IRS Glossary. Accessed January 2022. https://www.irs.gov/instructions/i8962