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eTax Alert: Marital status change can impact premium assistance credit

  • Jan 8, 2017
  • 2 min read

Change in Marital Status Causes Trouble for the Premium Assistance Credit (IRS Health Care Tax Tip 2015‑47, IRS Summertime Tax Tip 2015‑23)

Advanced premium assistance payments made to the individual’s insurance company are based on an estimate of family size and household income. If either change during the year because of marriage or divorce, the credit will change.

Tax planning point. For clients who are receiving an advanced premium assistance payment who marry or divorce during the year, both should immediately report the change to the marketplace and not wait until filing their tax return. Otherwise, there will be a surprise (sometimes good, but often bad) when the reconciliation of the credit is reported on the individual’s tax return.

Newlywed. If a client is marrying, be sure to add a health insurance review to her or his to‑do list. This is particularly important if one or both are enrolled in health coverage through the marketplace and are receiving an advanced premium assistance payment.

Example. Ingrid has two young children and has been purchasing her health insurance at Healthcare.gov. She estimated her 2015 household income would be $45,000. The premium for her silver level insurance is $666 a month. The government has been paying financial assistance of $392 and she has been paying $274 of the monthly premium. Ingrid marries John in October. John has a household income of $100,000. Because their combined 2015 household income will be $145,000, Ingrid and John do not qualify for a premium assistance credit and they must pay back $3,920 of the advanced payment that Ingrid received for the first ten months of 2015 (assuming Ingrid notified the marketplace of her marriage and change in income in October).

Newly divorced. If your clients are divorcing, be sure to remind them to review their health insurance, especially if the premium assistance credit will help pay the health insurance premiums of the spouse with reduced income. Other items to consider for divorcing couples:

  1. Special Marketplace Enrollment Period. If the divorcing spouse loses health insurance coverage due to divorce, he or she has a qualifying life event that allows him or her to enroll in health coverage through the Marketplace during a Special Enrollment Period.

  2. Shared Policy Allocation. If spouses divorce or legally separate during the tax year and are enrolled in the same qualified health plan, the couple must allocate policy amounts on their own separate tax returns to figure the premium tax credit and reconcile any advance payments made on the individual’s behalf. Publication 974, Premium Tax Credit, has more information about the Shared Policy Allocation.

 
 
 

Comments

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