Taxpayers who received an advance premium tax credit (subsidy) in 2014 and have not filed a 2014 federal return

As of the end of July 2015, approximately 1 million of the 4.5 million taxpayers who received an advance premium tax credit (subsidy) to help pay for their 2014 health insurance premiums had not filed a 2014 federal return and completed the required reconciliation on Form 8962 (Premium Tax Credit).

The IRS has sent these taxpayers Letters 5591, 5591-A, or 5596. These letters explain the importance for the taxpayer to file their 2014 federal return with a completed Form 8962 (Premium Tax Credit) within 30 days of the date of the letter in order to avoid a possible delay in receiving their advance premium tax credit to help pay for their 2016 health insurance premiums.

The automatic renewal process for the Federal and State Marketplaces will take place in early October 2015 for 2016 health insurance coverage. Those who go through the automatic renewal process will not be officially enrolled until December 15, 2015. Individuals who have not filed their 2014 federal return by early September 2015 may experience delays in receiving their advance premium tax credit (subsidy) that helps pay for their 2016 health insurance premiums.

Under the Affordable Care Act, any taxpayer who receives a subsidy to help pay for their health insurance premiums must complete the reconciliation of advance premium tax credit with the actual premium tax credit or they will be denied a subsidy in the following year. This means they must file a federal return and complete Form 8962 (Premium Tax Credit) for each year they receive a subsidy even if they otherwise do not have a filing requirement.

The Marketplace must receive from the IRS a positive indicator that the individual had completed the reconciliation in order to receive a subsidy for the subsequent year. Since it takes time for the IRS to process a return and then make it available to the Marketplace, there is a high likelihood that the IRS will have sent a negative indicator for those tax returns that are filed in mid to late September and October. Therefore, taxpayers may have to go through additional steps to receive their advance premium tax credit for 2016.

For more information see the following:

• IRS Health Care Tax Tip 2015-40 (File Your Tax Return Now to Receive Timely Advance Payments in 2016)
• Reconcile Advance Premium Tax Credits section of the Affordable Care Act Tax Provisions for Individuals and Families page on the IRS website
• Affordable Care Act: What’s Trending page on the IRS website

IRS Update: Change in Income or Family Size During 2014 and the Advanced Premium Tax Credit (Subsidy)

For individuals that received an advanced premium tax credit (subsidy) to help pay for their 2014 health insurance premiums, it is important to report any change in their circumstances (such as in their income or family size) to the Health Insurance Marketplace (Exchange) where they obtained their insurance. This is important because any change in circumstances for an individual can affect the subsidy amount that was calculated when they first signed up for health insurance.

The subsidy is actually an advance of the 2014 premium tax credit which is paid directly to an individual’s health insurance provider each month. This amount will be reconciled with the actual premium tax credit that will be calculated on the individual’s 2014 federal return (which is based on the 2014 income and family size reported on it).

The impact of this reconciliation to the individual is as follows:

• A refundable credit will occur if the actual credit is greater than the subsidy received.
• An additional tax will be due if the subsidy received is greater than the actual credit.
• Read More

Click here to read the entire CrossLink Tax Update that includes further information on changes in income or family size during 2014 and how it affects the advanced premium tax credit subsidy.