Income Tax 2022 2023 Affordable Care Act what you need to know, let’s do some wealth preservation with some tax preparation. Most of this information can be found at the form 1040 tax year 2022 instructions you can find
00:18
on the IRS website@irs.gov, IRS dot G O V, we’re going to be discussing the premium tax credit related to health insurance and the
00:28
Health Insurance Marketplace typically applied to lower income individuals, which can be quite confusing, because you may be able to get access to a tax credit. But usually when we talk about tax credits, they are provided at that point in time you file the tax return. So if you’re talking about tax year 2022, you’re gonna file by April 15, or April 18 of 2023.
00:53
When you file the tax return, that’s when you calculate the credit. But what they would like to do and what they’ve done more and more often with some of these credits, especially those applied to lower income individuals is to try to apply the credit and get use from it in the tax year that it’s been applied to, in this case,
01:12
2022 instead of waiting until you file the tax return in 2023. In order to do that, we have to have some kind of advanced estimate that needs to be made.
01:23
So there’s some kind of advanced estimate that basically is being made here. And instead of providing the cash to the taxpayers that they can then spend, say on insurance, for example,
01:34
they are then applying the advanced credit to the insurance payments. So it would be similar to then a tax payer receiving money from the government and then using that to pay down part of their insurance bill. But of course, what’s happening is the taxpayer has been cut out of the middle.
01:53
And the advanced payments are basically being applied to the insurance company directly paid down part of the insurance premium.
02:02
What that ends up with, is of course, at the end of the year, when we file the tax return, we need to determine what the actual premium tax credit would be now that we know everything for tax year 2022,
02:13
including income levels, so we can calculate that and compare it to the benefits that we already received in the form of the credit not for cash that was received, but rather for decreases to the premiums of the insurance, it’s kind of similar, people have getting more and more used to this
02:30
because they’ve tried this advanced payment system with the stimulus payments, where we basically had an advanced payment. And if there was anything wrong with it, we had to then calculate the credit, the recovery rebate credit, and the stimulus payments.
02:46
So we’ve gotten a little bit more used to this concept over the years, although this one’s probably the most complex iteration of this kind of advanced payment system that we’re looking at.
02:56
We also recently had the advanced child tax credits, where we have a different a similar scenario, they tried to calculate the credit or estimate what it would be and give the money out beforehand,
03:06
which can be beneficial to people in an emergency but also leads to complications that makes the tax preparation more complex, especially on the lower income side of things. Same kind of thing here.
03:19
All right, so the premium tax credit helps pay premiums for health insurance purchased from the marketplace, eligible individuals may have advanced payments of the premium tax credits made on their behalf directly to the insurance company.
03:32
So depending on how your insurance is structured, if you’re in the insurance marketplace, what they would do then is they would basically say, try to estimate in essence, what your income is going to be estimate what the actual tax credit would be the premium tax credits,
03:48
and then kind of come and then try to lower the amount that you’re going to pay for the insurance based on the advanced payment of the credit, a lot of estimating is going on here.
03:59
So if you are a family member enrolled in the health insurance through the marketplace, and advance payments of the premium tax credit were made to your insurance company to reduce your monthly premium payments, you must attach form 896 to two year return to reconcile compare the advance payments with your premium tax credit for the year.
04:20
So if you’re not participating in the health insurance kind of marketplace type of system, then it’s likely you’re not going to have this kind of issue.
04:29
Because you’re you didn’t get your premiums lowered by this estimate of the tax credit that might be applied to it. If you do then of course you have to do an reconciliation kind of scenario that in essence is form 8962 Which in essence is going to calculate the tax credit, actual tax credit, knowing the actual income level and other things that went on in 2022.
04:53
When you file in 2023. Compare that then to the estimate that was made and The benefit that was given not in the form of cash, but rather in the reduction of the cost of the insurance, lowering the premiums that you’re paying the bill for the insurance. So the marketplace is required to send form 10, nine, five A,
05:15
by January 31 2023, listing the advance payments and other information, you need to complete form 8962. So notice, this was all in the attempt when we had what they would call like the Obama Care kind of situation.
05:29
And at that point in time, you could see him kind of trying to go towards what they might call like a single payer type of system. And there were a couple, you know,
05:39
there’s pros and cons, when you think about that, from like, a political perspective, but the idea of insurances, there’s like a free rider problem with the insurance, meaning that if you pay for insurance, then you’re actually insurance,
05:53
sometimes people that are not paying for insurance, because if people are not paying for insurance, they’re still going to get some minimal amount of coverage, because we don’t want people to be sick and not be able to get care, even if they don’t have insurance, and they went to the emergency room, or something like that, right.
06:10
So what when they tried to kind of make a one payer system, what they would basically try to do is force everybody to be to be covered by insurance, right?
06:20
If they could, and that would be similar to what they do. In states for like car insurance, if they force the people to have car insurance, then you lose the free, you’re lowering the amount of free rider problems, where someone’s driving around in a car, they don’t care if the car gets totaled, or something like that,
06:37
and they don’t have any insurance, therefore, they can’t cover the damages on other people’s cars, the difference being of course, that you can kind of volunteer to drive, when you say that everybody has to buy insurance, then then that’s kind of a more blanket kind of, kind of thing. So, you know, the question was, can you do that? Can
06:57
you really like force everybody to purchase insurance, and can you force them to purchase what kind of insurance and that’s and that’s what kind of led to the tax code to try to be used to kind of verify that people have insurance. And if you don’t have insurance, then they penalize you, or tax you. Now, some of that got kind of taken, the teeth were taken out of it a bit.
07:23
When they said it began by saying that you couldn’t tax in the way that they wanted to tax. So some states still require like mandated insurance. But on the federal side, they’ve kind of removed part of part of that, but you still have this remainder, which is this health insurance marketplace.
07:42
And the tax credit was, which is an attempt to make the insurance more affordable. And so this 1095 A then is going to be the documentation.
07:52
When you see that documentation, you’re going to say, Okay, this is an indication possibly that this person is participating in the marketplace, which means that they might have gotten a reduction in the premiums that they were paying.
08:05
And therefore I might have to do this kind of a complicated calculation on the tax return at least for for low income tax returns to do this comparison to calculate the credit, versus the lowering on the premiums to determine if they’d have any added credit that would still be applied at this point in time.
08:22
Or if they went if they overtook the credit at this point in time, in which case, they’d have to pay it back possibly.
08:28
So to complete form 8962 to claim the credit, and to reconcile your advanced credit payments, and then three include form 8962, with your form 1040, form 1040, Sr form 1040 nr don’t include form 1095 A.
08:46
So that’s going to be kind of like, like similar to like a 1099, or a W two type of documentation, which is the documentation that you need, in order to fill out this kind of required piece of the tax return if you’re participating in the marketplace.
09:02
And again, if you’re in certain states, you might have some different kinds of requirements in terms of verifying that you had health insurance, and whatnot.
09:11
But usually the 1095 A is kind of the most scary one from a tax preparer perspective, because then you’re probably having to deal with this advanced payment kind of situation. Health Coverage reporting.
09:23
If you or someone in your family was an employee in 2022, the employer may be required to send you form 1095 See, part two of form 1095 see shows whether your employer offered you health insurance coverage and if so information about the offer, so you should receive form 1095 C by early March 2023.
09:45
So this information may be relevant if you purchase health insurance coverage for 2020 through two through the Health Insurance
09:53
Marketplace and wish to claim the premium tax credit on schedule nine I’m scheduled three line now And so now you’ve got some questions in terms of, you know, who can participate to be involved in the Health Insurance Marketplace. Health insurance, as we know is has been kind of a mess.
10:10
And we’ve been, they’ve been trying to think of different strategies to, to put it together. And obviously, the strategies have been going in opposite directions, oftentimes one strategy being they’re trying to centralize everything, everyone to have a single payer system, which could lower the free rider kind of problems and that kind of stuff.
10:28
But the argument against that is that it’s likely that if it’s going to be run from the top down, and we’ll lose innovation, we’ll lose the we’ll lose our ability to advanced in the medical field and be more efficient. We’re losing market forces. In other words, the other argument is to try to decentralize and have more choice and more options.
10:50
And the argument there is that you would have more, more competition and whatnot, which would, which would drive more quality outcome. But then, of course, you have this issue of the free rider problem. And you know, the cost of health insurance,
11:07
and how can you cover the cost that peep for people that genuinely can’t afford health insurance. And you could see these kind of playing out these kinds of problems playing out in the law here, because it used to be that the health insurance was kind of tied to the employer.
11:22
And the reason it was it kind of worked that way in the past, is because it used to be that you’d have a single family home, oftentimes a single, a single worker, family home, that had one job for a long period of time, they were usually salaried employees, right.
11:39
And then if that was the situation, the health insurance through the employer was often a benefit that can be beneficial, not just for taxes, but also because you get that group, possibly group insurance policy, so most people got their health insurance
11:54
through work that has been changing over time, because people no longer spend their whole life at one job. Oftentimes, they often have multiple jobs. It’s just kind of normal now. And you have multiple income families, multiple people working.
12:08
And so then the question is, if you get access to health insurance, through your job, should you be able to get access to the health insurance marketplace, and so on, and so forth. So around we go. So however, you don’t need to wait to receive this form to file your return, you may rely on other information received from your employer.
12:27
So usually, if you’re not participating in the marketplace, it’s a pretty straightforward, more of a straightforward type of situation on the state side,
12:35
you might have to confirm that you had health insurance, but you’re not doing that comparative thing, because you didn’t get a credit that an advanced credit that you need to kind of tie out to. So if you don’t wish to claim the premium tax credit for 2022, you don’t need the information in part two, a form 1095 C.
12:54
So in other words, usually the premium tax credit is for lower income individuals that are going through the marketplace, oftentimes, to get that advanced payment. That is the advanced portion of the credit, which is usually encased indicated by the form 1095 A.
13:11
So A 1095. C, if you don’t have a premium tax credits might be used just to indicate that you had health insurance through the years, which again, on the federal level,
13:21
they were trying to force everybody to prove that and penalize people or tax people, whatever you want to call it. If you don’t have health insurance to try to force people to buy health insurance to remove the free rider effect to try to get everyone on a single payer system.
13:36
I think they that basically got kind of derailed, that that ability for them to force that the penalize people. But on the state side, you still possibly could have a situation where you have to basically prove that you have health insurance for the year,
13:51
but that’s a pretty easy thing to click off. And so yeah, I had health insurance for the year as opposed to I’m trying to figure out what the Advance Premium Tax Credit would be. So for more information on who is eligible for the premium tax credit, see the instructions for Form 8962