This is easy methods to keep away from any tax time surprises with the medical health insurance premium credit score

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The health insurance premium tax credit was designed to help lower-income Americans pay for insurance — but, if you’re not careful, you could end up owing money at tax time.

The refundable credit is available to any individual or household that obtains a health insurance policy through one of the health-care exchanges set up as part of the Patient Protection and Affordable Care Act, commonly referred to as Obamacare.

Intended to help people who aren’t insured through an employer-sponsored plan, anyone making less than 400% of the official federal poverty level is eligible for the credit. As of the end of 2019, 11.41 million people had obtained insurance through one of the health-care insurance exchanges, according to data from the Kaiser Family Foundation. Of those people, 8,515,524 people received total annual credits of $52.3 billion, with the average monthly credit being $512 per person.

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The eligible credit for any individual is based on their income, where they live and how large their household is. The less money you make and the larger your family, the larger your credit will be. For 2021, the federal poverty level is $12,280 for single individuals and $26,500 for a family of four living in any of the 48 contiguous states or the District of Columbia. It is $33,130 for a family of four living in Alaska and $30,480 for a family in Hawaii.

“It’s a bit surprising how much money you can make and still qualify for the credit,” said Tom Gibson, a Vero Beach, Florida-based CPA with Tax Saving Professionals. Based on the 2019 poverty threshold of $25,750, a family of four making up to $103,000 was eligible for the credit. The monthly premium for a silver plan purchased on the Florida health insurance exchange was $1380.

Gibson calculated that a family living at the poverty threshold in that year would receive a monthly credit of $1,336 and bear a cost of $44 per month. A family at 390% of the threshold would receive a credit of $575 and be responsible for covering $805 of the monthly premium.

Individuals eligible for the credit can receive the entire annual amount at the end of the year, reducing taxes owed or increasing their refunds. However, when people enroll in the plan, most arrange to have advance payments of the credit applied to their monthly premiums due.

While the advance payments are convenient for plan participants, they can significantly alter your ultimate tax liabilities if your circumstances change during the year.

“If you got a raise, or perhaps your spouse got a part-time job or a dependent left the household, it impacts the amount of credit you’re eligible for,” said Gibson. “If advance payments were applied to your premiums, you could end up owing at the end of the year.”

On the flip side, if you had a child last year, were laid off or otherwise saw your income fall — a significant possibility for many lower-income Americans last year — you may be eligible to receive additional credit on your tax return this year.

Either way, if you don’t like surprises at tax-filing time, it pays to promptly report all changes to your income and family circumstances to ensure that the advance payments accurately reflect your life profile. Any updates can be made through an account at the website, by phone with your marketplace call center or in person.

If you received advance payments of the credit through the year, you are required to reconcile the amounts with what you are ultimately eligible for by completing Form 8962 with your tax return.

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