Whether you’re buying health insurance as an individual, a family or a business, it can impact your taxes. A number of health insurance-related tax credits are available through different outlets set forth by the IRS that can lower the total amount of money you pay in taxes. You may be eligible for one of these credits, which can allow you some relief when it comes to paying for health insurance premiums.
What is a Premium Tax Credit?
A premium tax credit helps individuals and families cover the costs of health insurance. It’s a refundable credit that can help offset the monthly premium costs of your health insurance. Whether you qualify depends on your income level and whether your annual household income meets a certain level relating to the federal poverty line for the size of your family.
Premium tax credits are also available to small-business owners. The Affordable Care Act (ACA) includes a small-business tax credit to encourage business owners to offer health insurance options to their employees. While there is no health insurance mandate that requires individuals to purchase and maintain a certain level of health insurance coverage, you may be required to offer health insurance options to your employees depending on the size of your business and where you operate.
Taking advantage of a premium tax credit for business owners reduces your total tax liability by reducing the amount of income you must pay taxes on. This results in a lower overall tax burden after you subtract the premium from the total income of yourself or your business.
How the Small-Business Health Insurance Tax Credit Works
The small-business health insurance tax credit was rolled out as a part of the ACA and encourages business owners, particularly those of small businesses, to either offer employees insurance or continue to maintain the coverage they already have if they have it.
This health insurance tax credit is for small businesses that pay at least 50% of the single coverage cost for their employees. To get the tax credit, you must meet certain criteria, and the credit you receive can extend to up to 50% of the premiums you paid for your employees’ health insurance. The credit does not take into consideration the premiums you’ve paid for yourself as the owner of the business.
Enrolling in a Small Business Health Options Program (SHOP) is typically the only way to claim the credit. However, the qualifications your business needs to meet include having less than 25 full-time equivalent (FTE) employees, paying at least 50% of your employees’ premiums in accordance with an IRS-qualified arrangement and having an average wage at $56,000 or lower. You also need to offer SHOP coverage to all full-time employees if you choose to take advantage of the program.
According to the IRS, the smaller your business is, the bigger the credit can be. The tax credit is higher for those small businesses with fewer than 10 employees. The business typically needs to have fewer than 50 employees to be eligible for coverage through SHOP. However, some states allow for companies with up to 100 employees to get coverage through SHOP, so it’s important to learn more about your individual state’s rules and regulations before you apply for SHOP.
Forms Required for Premium Tax Credits
There are a number of tax forms that you’ll need to submit when filing your taxes to take advantage of a premium tax credit. The specific forms you must file will vary depending on:
- How you received your health insurance policy
- The type of health insurance plan you purchased
- Whether you had a Marketplace plan and qualified for credits to reduce your premium payment throughout the year
The following are some of the forms you may be required to file depending on your unique situation.
Form 1095-A: This form is also referred to as the Health Insurance Marketplace Statement. It’s used to report your health insurance on your taxes if you purchased health insurance through a private or government-sponsored marketplace. Form 1095-A must be completed for each insurance policy you’ve had throughout the year. You’ll need this form to complete Form 8962, which is the form you need to file if you used premium tax credits to lower your monthly premium payments throughout the course of the year.
Form 1095-B: This form is proof that you or your family had health insurance throughout the previous year and will usually be sent to you by your health insurer. While the form is not usually included in your tax return, it incorporates information that is needed to accurately fill out your taxes.
Form 1095-C: This form pertains to employer-provided health insurance. Your employer or union will send you this form if you received health insurance during the specific year from your union or employer. Form 1095-C will not be included in your tax return, but it contains information that is vital for when you’re filing your taxes.
Form 8941: This form pertains to small-employer health insurance premiums to calculate the credit received. This form is used by small employers to determine the credit for small-employer health insurance premiums for the tax year.
How to Reconcile Your Premium Tax Credit
If you used premium tax credit payments to lower your monthly health coverage payments during the year and had a marketplace plan, you need to reconcile the tax credit when filing your taxes. To do that you need to compare two important figures: the premium tax credit amount used during the year in advance and the tax credit you qualify for based on your year-end income. The difference between these figures will affect the amount of taxes you owe and your tax refund.
The process to reconcile your premium tax credit is fairly straightforward. You should receive your Form 1095-A by mail in February. Getting this form is the first step. You’ll then need to print Form 8962 and the instructions that coincide with that form. Use the information provided on the 1095-A form to complete Part II of the 8962 form.
The information you need from Form 1095-A to complete Form 8962 includes your enrollment premiums and the advance payment amount of the premium tax credit. Once you’ve completed all sections of Form 8962, you’ll discover whether you used more or less premium tax credit than you qualify for. This will influence your refund and amount of taxes due. Include the complete Form 8962 with your federal tax return.
Compare Health Insurance
Finding partially tax-exempt health insurance premiums starts by comparing all health insurance options you have for yourself or your business. Benzinga offers insights and reviews on the following health insurance providers. You can continue or begin your research using the links below.
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Plans referred to above are excepted benefit fixed indemnity insurance products marketed and administered by Sidecar Health Insurance Solutions, LLC and underwritten by Sirius America Insurance Company or United States Fire Insurance Company, depending on the state. As an excepted benefit plan, it does not provide comprehensive/major medical expenses coverage, minimum essential coverage, or essential health benefits. You cannot receive a subsidy (premium tax credit and/or cost-sharing reduction) under the ACA in connection with your purchase of such an excepted benefit fixed indemnity insurance plan. Also, the termination or loss of this policy does not entitle you to a special enrollment period to purchase a health benefit plan that qualifies as minimum essential coverage outside of an open enrollment period. Coverage and plan options may vary or may not be available in all states.
Keeping Records Before Tax Season
Filing taxes (especially as a business owner who employs multiple people) is much easier if you keep records of your payments and used credits throughout the year. Staying organized and taking time to manage your health insurance paperwork before you need to file your taxes will ensure you don’t miss out on potential savings your business might be able to take advantage of. Even as an individual, it’s important to keep track of your premium payments to ensure the information your health insurance provider gives you at the end of the year is accurate.
Frequently Asked Questions
Do you get a tax refund for health insurance?
You can claim a tax refund for your health insurance if you qualified and received a health insurance premium tax credit. You have to qualify to be eligible to receive a premium tax credit, so if you don’t qualify and did not receive a tax credit, you likely won’t get a tax refund for any portion of your health insurance.
What is a health insurance tax rate?
A health insurance tax rate is the percentage rate that is taxed on issued health insurance plans. These taxes are paid by health insurance carriers. While health insurance benefits are not taxable under state and federal law, the health insurance tax rate can affect you in the form of higher premiums.
About Sarah Horvath
Sarah Horvath is a highly respected freelance senior copywriter specializing in insurance content. With a wealth of experience, she is recognized as one of the top insurance copywriters in the industry. Sarah’s expertise encompasses various aspects of insurance, including home warranties, life insurance, health insurance, and more. Her insightful articles and guides are regularly featured on major finance sites, providing invaluable information to readers seeking to navigate the complexities of insurance policies. Known for her clear, concise writing style and comprehensive understanding of insurance products, Sarah is dedicated to empowering individuals with the knowledge they need to make informed decisions about their insurance coverage.