Did you know that by May 28, 2021, the IRS received more than 7 million tax filings, including Form 8962? When compared to the same time period in 2020, this is an increase of about 45%.
Form 8962 is a crucial IRS form that taxpayers must understand during tax season, especially those who purchased it.
This form helps calculate and reconcile premium tax credits received throughout the year. In this article, we will discuss everything you need to know about Form 8962, including the process of calculating and reconciling premium tax credits, common mistakes to avoid, and more.
Below, we will explore what Form 8962 is, who needs to file it, and why it is essential to understand the process of calculating and reconciling premium tax credits.
What Is Tax Form 8962?
Form 8962, also known as the Premium Tax Credit (PTC) form, is used by taxpayers who have enrolled in a qualified health plan through the Health Insurance Marketplace.
The form calculates and reconciles the number of PTCs received throughout the year.
PTCs are a form of financial assistance provided by the government to help individuals and families pay for health insurance premiums.
Who Needs to File Form 8962?
Individuals who purchase health insurance through the Health Insurance Marketplace and receive PTCs must file Form 8962. Taxpayers who did not receive any premium tax credits do not need to file this form.
Why Is Form 8962 Important?
Form 8962 is crucial because it determines whether a taxpayer is eligible for additional PTCs or if they owe any money back to the government. The form also helps ensure taxpayers receive the correct amount of premium tax credits throughout the year.
By accurately reporting income and household size on Form 8962, taxpayers can avoid having to repay any excess premium tax credits received during the year.
Calculating Premium IRS Tax Credits
Let’s look at the calculation of PTCs. To calculate premium tax credits, taxpayers must provide information about their:
- Household income
- Family size
- Cost of their health insurance premiums
The premium tax credit is calculated based on a sliding scale, with the credit amount increasing as income decreases. The lower the income, the higher the premium tax credit.
Reconciling Premium Tax Credits
At the end of the year, taxpayers must reconcile the premium tax credits they receive throughout the year with the PTC they are eligible for based on their actual income for the year. If the premium tax credits received were less than the PTC the taxpayer was eligible for, they may be eligible for additional premium tax credits.
However, if the PTCs received were more than the premium tax credit the taxpayer was eligible for, they may have to repay some or all of the excess premium tax credits.
Completing Form 8962
Completing Form 8962 can be a complicated process. Taxpayers must provide detailed information. Ensuring that all the information provided is accurate is essential to avoid any errors or delays in processing the return.
Step 1: Determine Eligibility
The first step in completing Form 8962 is determining whether the taxpayer is eligible for the premium tax credit.
To be eligible, taxpayers must have purchased health insurance through the Health Insurance Marketplace. Also, their household income must fall within a certain range. If taxpayers are not eligible for PTC, they do not need to complete Form 8962.
Step 2: Gather Information
The next step is to gather all the necessary information to complete Form 8962. As previously discussed, this includes information about the following:
- Household income
- Family size
- Health insurance premiums
Taxpayers can find this information on Form 1095-A. Form 1095-A is provided by the Health Insurance Marketplace.
Step 3: Complete Form 8962
Once all the necessary information has been gathered, taxpayers can begin completing Form 8962. The form consists of several parts.
Part I of Form 8962
Part I of Form 8962 requires taxpayers to provide information about their household income, family size, and the cost of their health insurance premiums. Taxpayers will also need to provide information about any advance payments of the premium tax credit they receive during the year.
Part II of Form 8962
Part II of Form 8962 is used to reconcile the PTC received with the premium tax credit the taxpayer was eligible for based on actual income. Taxpayers will need to provide their actual income for the year and any changes in family size. Also, any other factors that may affect their eligibility for the premium tax credit.
Once all the information has been entered, taxpayers can calculate the premium tax credit they are eligible for based on their annual income. If the PTC received is less than the PTC the taxpayer is eligible for, they may be eligible for additional premium tax credits.
If the PTC received was more than the PTC the taxpayer is eligible for, they may owe some or all of the excess premium tax credits back to the government.
Common Mistakes to Avoid
Completing Form 8962 can be a complicated process, and taxpayers should avoid several common mistakes. One of the most common mistakes is failing to report all income sources accurately. This can result in an inaccurate calculation of the PTC, leading to either owing money to the government or missing out on additional PTCs.
Another common mistake is failing to report changes in family size or other factors that may affect eligibility for the PTC. Taxpayers must report any changes in family size or other factors promptly to ensure that their PTC is accurate.
Finally, failure to reconcile PTCs received with the premium tax credit the person is eligible for, based on actual income, might result in owing money to the government or missing out on more PTCs. Taxpayers must ensure that they accurately reconcile their premium tax credits at the end of the year to avoid any issues.
Cracking the Code for Form 8962!
Form 8962 is an essential IRS form that taxpayers who purchase health insurance through the Health Insurance Marketplace must complete. This form calculates and reconciles PTCs received throughout the year.
Understanding the process of calculating and reconciling PTCs is crucial to ensure that taxpayers receive the correct amount of PTCs and avoid having to repay any excess credits received during the year.
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