Insurance has become a highly crucial subject among many people. More specifically, health insurance has gained a lot of attention over the years. The Health Insurance Marketplace is a platform that offers insurance plans to entities. These entities may include individuals, families, and small businesses. This Marketplace exists due to the Affordable Care Act.
The Affordable Care Act is a healthcare reform in the US, established in 2010, also known as Obamacare. This law required states to set up exchanges for individuals and families that didn’t have employer-sponsored insurance. Through this act, these people could find a plan that suits their needs. There are several categories within this Marketplace.
This Marketplace also provided taxpayers with several other benefits, particularly related to tax. One of these reliefs came in the form of the advance payment of premium tax credit provided to users of the Marketplace. This tax credit relates to any advance premium paid on health insurance. However, it does not include advance premiums on insurance. Nonetheless, it is crucial to discuss both to understand the difference.
What is Advance Premium?
An advance premium is an initial payment made by an individual to bind an insurance policy for a period. It is a payment made by the insured to the insurance company before a specific date of payment. In some cases, this term may also refer to the first payment to a policy that does not have a calculated actual premium value. Several reasons may exist as to why insured people may pay an advance premium.
Advance premium payments may be necessary as the insurance company may offer an incentive to do so. Usually, these payments occur before the schedule for premium payments becomes available. The incentives that come with such payments may differ from one insurance provider to another. For example, some insurance companies may discount the actual premium price in exchange for these payments.
Advance premium may also include the first payment for an insurance policy. This payment comes from an estimate since the valuation of the coverage may not be complete. However, these payments are crucial in binding the insurer to the insured. Once the actual valuation is available, the insurance company will make adjustments to the second premium. In this case, it is known as a deposit premium.
For the insurance company, any advance premium becomes a part of the advance premium funds. These payments do not constitute earned income. Instead, it becomes a prepayment from the insurance until the insurance coverage becomes final. However, the advance payment of premium tax credit does not relate to the insurance company. It only applies to the insured person.
Overall, an advance premium may refer to two types of payments. The first includes the premium paid to the insurance provider before the scheduled premium payments begin. Usually, the insurer provides an incentive for these payments. In contrast, an advance premium may also refer to the first payment made by the insured to bind the coverage. Usually, it occurs when the actual schedule for premium payments is not available.
What is the Advance Payment of Premium Tax Credit (APTC)?
The advance payment of premium tax credit, also known as an advanced premium tax credit, relates to Obamacare. It is a credit that falls under the Patient Protection and Affordable Care Act (ACA). When an individual enrolls in coverage and requests financial assistance, the Marketplace estimates their premium tax credit. This amount will represent their allowance for the year of the coverage.
The Marketplace uses information from several sources to provide this estimate. This information includes the insured’s family composition and household income. Similarly, it considers whether those who are enrolling are eligible for other non-marketplace coverages. Based on these factors, the Marketplace provides an estimate for the premium tax credit.
Based on the above estimate, the taxpayer can choose to have some, all, or none of their estimated credit paid in advance. Subsequently, this credit payment occurs directly to the insurance company on the taxpayer’s behalf. These payments are known as the advance payments of the premium tax credit. Another term used for these payments is advance credit payments.
The advance payment of premium tax credit reduces the amount an individual pays out of their pocket for monthly premiums. As these credits cover a part of those premiums, it lowers the burden on the insured. However, there is no guarantee that they will receive these credits. If they do not get advance credit payments, they must pay for full monthly premiums.
Overall, the advanced payment of premium tax credit is a federal tax credit for individuals. This tax credit reduces the amount that those individuals pay for monthly health insurance premiums. However, this tax credit applies to any health insurance bought on the Marketplace. As mentioned, this credit falls under the Patient Protection and Affordable Care Act, also known as Obamacare.
How to Apply for the Advance Payment of Premium Tax Credit?
The advanced payment of premium tax credit relates to individuals who enroll on health insurance through the Marketplace. However, this tax credit does not occur automatically. Instead, individuals must apply for it when they sign up for insurance. They can do so by having the Marketplace website calculate the amount of credit. As mentioned, this estimation occurs based on several factors.
However, individuals can also pay their regular premiums. Later, they can claim the tax credit back on the tax return when filing the upcoming year. When buying health insurance on the Marketplace, individuals can choose the amount of their advance premium tax credit. It does not require them to apply for the full tax credit to their premiums.
There are several eligibility requirements that individuals must meet to qualify for the premium tax credit. Some of these are already mentioned above. Nonetheless, the overall requirements include the following.
- Individuals must get their healthcare coverage through the Marketplace.
- They can’t apply for this credit if their healthcare coverage comes from alternative options. Therefore, those with employer or government healthcare coverage cannot apply.
- Their incomes must fall within a specific range.
- They must claim the tax credit for themselves. Others cannot claim them as dependent on their return.
- They must file a joint return if they are married.
How to Report Changes in Circumstances for Advance Payment of Premium Tax Credit?
For individuals who purchase health insurance coverage through The Marketplace, this tax credit may apply. For those who benefit from this tax credit, it is crucial to report changes in life events. In this context, these events are known as changes in circumstances. Most of these changes relate to the estimation aspects considered by the Marketplace.
There are specific circumstances that this tax credit requires individuals to report. These may include the household size or income change during the year. These two are the critical factors when assessing the tax credit that individuals get. Most of these other factors fall within the same categories. However, they may also include more.
In general, changes in household income can impact the tax credit individuals get. These also include any events that can cause a significant increase in household income. Similarly, changes in household size are critical for this tax credit. These circumstances may involve deaths, births, adoption, joint filing, marriage, divorce, etc. Factors related to the eligibility criteria changing also require reporting. Lastly, changing address falls under changes in circumstances.
Individuals who don’t fall under government or employer insurance can buy health coverage through the Marketplace. For their premium payments, these individuals can receive a tax credit. This tax credit is known as the advance payment of premium tax credit. Through this credit, individuals can reduce the premium they pay for their healthcare coverage.