ARPA’S Enhancements to the Premium Tax Credit

The premium tax credit (PTC) is a refundable tax credit that assists individuals and families in paying for health insurance obtained through a Marketplace (Healthcare.gov) and was established under the Affordable Care Act (ACA). Recent COVID relief legislation, the 2021 American Rescue Plan Act, (or ARPA) that was just recently passed in March 2021 made several changes to this credit. Below, we’ve assembled an overview of these changes.

Changes in Eligibility for Households Above 400% of the Federal Poverty Line

Under pre-ARPA law, individuals with household income above 400% of the federal poverty line (FPL) weren’t eligible for the PTC.

Under ARPA, for 2021 and 2022, the PTC is available to taxpayers with household incomes that exceed 400% of the FPL. This change will have the effect of increasing the number of people who are eligible for the PTC.

An Increase to PTC for 2021 and 2022

New tables for 2021 and 2021 will modify how the PTC is calculated. These tables calculate the PTC on a sliding scale based on household income, expressed as a percentage of the federal poverty line (FPL). The amount of PTC a taxpayer is eligible for is limited to the excess of the premiums for the applicable benchmark plan over the taxpayer’s required share of those premiums. Previously, a taxpayer would have had to spend as much as 9.83% of their house hold income on health insurance to be eligible for the PTC. This amount decreases to 8.5% for 2021 and 2022.

No Repayment of Excess Advance PTC Payments for 2020

One of the biggest changes to the PTC was the suspension of any repayment of “excess” advances of the PTC. Even though the ARPA was passed in March 2021, this impacted many 2020 filers and is part of the reason for the delays experienced this filing season.

Historically, if your actual PTC turned out to be more than the advance payments you received as a subsidy to your health insurance premiums during the year, you would receive a refundable income tax credit for the excess. But if your advance payments exceed your PTC, you were required to pay back the excess as additional income tax, subject to a repayment cap based on your household income.

For 2020 under ARPA, if you file a 2020 return reconciling your advance PTC payments with your actual PTC, no additional income tax will be imposed if the advance payments are greater. Taxpayers can retain the benefit of the advance payments even if they exceed the maximum PTC to which they are entitled.

This is all very new guidance, but at this time, we are not recommending that clients file amended returns to claim a refund if they’ve already filed a 2020 return and paid the excess credit back as additional tax.

Please let us know if you would like more information about these new provisions.

Obamacare: Healthcare Solution or Taxpayer Burden?

On Monday, July 20, Orrin Hatch, Chairman of the Senate Finance Committee, called for an inspection of the Advanced Premium Tax Credit (APTC) program for 2014. The APTC is designed to forward tax credits as subsidies to individuals for health insurance on the exchange; with a reconciliation of these subsidies coming after year end when the individual files their tax return.

An inspection of this program found that over 710,000 recipients likely received over $2.4 Billion in advanced credit payments, and failed to submit tax returns or extensions of time to file after the deadline. The filing of a tax return is an important part of the program, as it ensures that individuals received the correct subsidy based on their income level, and pay any difference for subsidies received in advance.

In an undercover investigation, the federal exchange approved 11 out of the 12 fictitious applications it received over the phone and online. These undercover applications were submitted using falsified social security numbers or other fictitious information. The approval of these 11 applications cost the federal government (the taxpayer – you and I), $30,000 per year.

While many of the 710,000 recipients who did not file tax returns may have received warranted subsidies, the results of the undercover investigation performed by the Government Accountability Office (GAO) make me nervous about the accountability for government spending of our hard earned tax dollars.

Click here for a copy of the press release and more information on the findings of this investigation.

For questions on the Affordable Care Act (ACA) or any other tax related matters, contact Paul at paul@launchconsultinginc.com

 

Affordable Care Act and what it means for you

As many of you are well-aware of at this point, the Affordable Care Act (ACA) required individual taxpayers to have a minimum essential coverage beginning in 2014. This act has many moving pieces and still remains complex to the bulk of taxpaying Americans. Recently, the IRS released a webinar, hoping to alleviate much of the confusion. Here is the link for anyone who may be interested in obtaining a better understanding of exactly how this act impacts them or their families.

For questions or more information, please contact Paul Glantz, CPA at paul@launchconsultinginc.com