How to Help Clients Navigate ACA Marketplace Subsidies & Taxes

The last day to file 2023 taxes is April 15, 2024. If any of your clients had marketplace coverage last year, when filing their taxes, they must report this and any tax credits they received.

Taxes can be confusing for everyone, and some clients with an Affordable Care Act (ACA) insurance plan may not be aware that they must report any subsidies obtained. We’ll discuss how to navigate reporting premium tax credits (PTC) and some common issues that clients may experience.

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Why Report Marketplace Coverage to the IRS?

The Internal Revenue Service (IRS) gathers information on the marketplace and about the individuals who use these plans to evaluate the total monthly health insurance premiums paid to the insurance company your client has selected coverage from. They also want to ensure the subsidy amount a beneficiary received for that tax year aligns with their household income level for that year. If it does not match, the government may owe the beneficiary the difference or the beneficiary may have to pay it back.

Additionally, your client’s household income levels are used to determine subsidy eligibility for the upcoming coverage year. With the introduction of the Inflation Reduction Act, clients now have more ability to earn PTCs through 2025.

ACA Subsidy Tax FAQs & How to Navigate Them

If your client is new to receiving marketplace coverage, they may not know that they must report the ACA subsidies they received and premiums they paid. With marketplace coverage, there are also forms that your client may be filing for the first time. Below, we’ll provide the answers to commonly asked client questions on marketplace subsidies and taxes.

What forms do I need to file?

Form 1095-A

Clients who had marketplace coverage last year will receive Form 1095-A in the mail, or electronically, in mid-January. (This form is available through HealthCare.gov or the state exchange website, for those who would prefer a digital copy.) Form 1095-A is the primary form used to report any earned PTCs and monthly premiums paid by your client. Also on this form, your client will find the premium of the second-lowest cost Silver plan (SLCSP). This is the second-lowest priced marketplace plan in the Silver metal tier category that applies. It may not be the coverage your client has selected, but they’ll need to know the SLCSP premium to find their final PTC. HealthCare.gov also has a tool to find your client’s SLCSP.

If your client did not receive this letter or there is an error, contact the Marketplace Call Center at 1-800-318-2596.

Form 8962

Form 8962 is the other marketplace tax form required. Clients will receive this form in the mail by mid-February. (This form is also available online beginning in mid-January.) This form calculates PTC. Even if your client opted not to receive tax credits, Form 8962 is still required because this information can affect future PTCs. The only exception to this is if your client paid full price for marketplace coverage and is sure they don’t qualify for PTC. We recommend double-checking your client’s subsidy eligibility using the tool on HealthCare.gov.

There are two parts to Form 8962. The first part determines eligibility for the PTC and if your client is eligible to receive the Advanced Premium Tax Credit (APTC). The second part of Form 8962 is only for clients who qualify for PTCs. This portion of the form is used to compare the total available credit to the amount of money the federal government paid the insurance company over the year to reduce premium costs. Your client will use information from Form 1095-A to complete Part II of Form 8962.

I qualify for a tax credit. How do I use it?

If your client qualifies for a tax credit, they have one of two ways to use it:

A. Reduce taxes — They claim their entire credit when filing their income tax return.
B. Reduce monthly insurance payments — The government pays money to their insurer over the course of the year, and they pay less for health insurance each month.

I received the APTC. What do I need to do when filing my taxes?

Follow the instructions on Forms 1095-A and 8962 to calculate accurate PTC information for the tax year. In some cases, clients may have experienced income changes that may influence eligibility for PTCs. Some clients may have to repay their subsidies if they earned more than what was expected. Other clients may be eligible to claim additional tax credits.

In some cases, clients may have experienced income changes that may influence eligibility for PTCs.

To figure out how if your client owes any money back for PTC, have your client compare the amount of PTC used and the amount of PTC your client qualifies for based on their income. Any difference between these two figures will increase a client’s tax refund or the amount of tax owed. Any excess advanced payments will have to be reported on the tax return. The marketplace refers to this process as “reconciling” their PTC.

Follow this guide from HealthCare.gov to help clients reconcile their own PTCs.

Do I have to file on paper?

Clients do not have to file on paper. All forms that your client may need are available electronically on your clients’ HealthCare.gov account.

Additionally, the IRS offers Free File for individuals whose income is less than $79,000.

What happens if I don’t reconcile my PTC?

There could be consequences if your client does not file a tax return or reconcile their PTC. If your client misses the April 18 deadline, make sure they’re on the lookout for a letter from the marketplace and Letter 12C from the IRS. This letter notifies the client that there is missing information from their tax return. The IRS recommends that clients respond to their letter, whether they agree with it or not. Encourage your clients to act in a timely manner.

If your client misses the April 15 deadline, make sure they’re on the lookout for a letter from the marketplace and Letter 12C from the IRS.

Not filing on time could affect your client’s subsidies for the upcoming coverage year. HealthCare.gov mentions that clients could lose out on savings.

Be a Client Advocate

Taxes can be tricky for everyone, and if your client is receiving health care coverage from the marketplace for the first time, they may be unsure of ACA requirements at tax time. Educate yourself on the key components of filing taxes with marketplace coverage and advocate for your client. Remind them that you’re in their corner to build a great relationship. And if you’re unsure of where to go next, Ritter is in your corner as well!

Ritter is not a professional tax advisor, and you don’t need to be either! While you may not assist clients with filing taxes unless you are a properly licensed tax professional, you can help them access the forms, help them understand the forms, and reconcile their PTC. Tax season is also a great opportunity to form an affinity partnership with a local trusted tax advisor to mutually refer clients.

To receive dedicated agent support, register with Ritter today! You’ll receive great benefits, such as support from our team of dedicated sales specialists; access to our educational resource, Knight School; and an excellent portfolio of carriers and contracts.