Advance Payments of the Premium Tax Credit:
The premium tax credit is a new income tax provision to help individuals and families afford health insurance coverage purchased through a Marketplace.
An individual may choose to apply some or all of the tax credit towards Qualified Health Plan (QHP) premium costs on an advance basis - with reconciliation at the end of the year - or to receive the credit on their individual federal tax return filed for the coverage year.
Advance payments of the premium tax credit are paid directly to the health insurance issuer offering the QHP on a monthly basis. The income tax return for the coverage year will reconcile any advance payments of the premium tax credit with the premium tax credit allowed on the return. The Marketplace will provide documentation to the tax filer and to the Internal Revenue Service (IRS) that will support the reconciliation process in the same way an employer or bank provides a Form W-2 or Form 1099.
Individuals eligible for a premium tax credit who do not receive an advance payment of the premium tax credit may claim the credit on their income tax return filed for the coverage year.
Cost-sharing reductions are subsidies that reduce the amount of out-of-pocket expenses, such as deductibles or coinsurance, an individual is responsible for as part of their coverage under QHP.
Some individuals who are eligible for tax credits are also eligible for cost-sharing reductions, depending on income, as determined by their modified adjusted gross income (MAGI).