What is the Premium Tax Credit?
(PTC)
A refundable federal tax credit to help eligible taxpayers pay for health insurance premiums.
The PTC is available for taxpayers who purchase insurance through a federal or state healthcare exchange and is based on household income.
What are the two ways a taxpayer can receive the Premium Tax Credit?
- Advance payments to the insurance provider to lower monthly premiums (Advance Premium Tax Credit).
- As a refundable credit on their tax return if they pay full price initially.
List the eligibility requirements for the Premium Tax Credit.
- Purchase health insurance through the Healthcare Marketplace.
- Be a U.S. citizen or legal U.S. resident.
- Be unable to get coverage from an employer or the government.
- Not be claimed as a dependent on another’s tax return.
- If married, generally file a joint tax return.
- Meet certain household income requirements.
True or False:
Taxpayers who purchase health insurance directly from an insurance provider are eligible for the Premium Tax Credit.
False
The Premium Tax Credit is only available to those who purchase insurance through the federal exchange, not directly from providers or through employer plans.
What happens if a taxpayer receives more Advance Premium Tax Credit (APTC) than they qualify for?
They must repay the excess amount, referred to as ‘excess APTC’, when filing their federal tax return.
What is Form 8962 used for?
Reconciling advance payments of the Premium Tax Credit with the actual credit earned based on annual income.
Fill in the blank:
The Net Investment Income Tax (NIIT) is a _____% tax on certain investment income.
3.8
Who is subject to the Net Investment Income Tax?
U.S. citizens and U.S. resident aliens with investment income above certain thresholds.
This tax may apply to individuals, estates and trusts. Nonresident aliens are not subject to the NIIT, even if they have U.S. source investment income.
What types of income are subject to the Net Investment Income Tax?
(NIIT)
- Interest income (unless tax-exempt)
- Dividends and capital gains
- Rental and royalty income (if passive)
- Income from trading of financial instruments or commodities
- Income from businesses that are passive activities
What types of income are NOT subject to the Net Investment Income Tax?
(NIIT)
- Wages and self-employment income
- Social Security benefits
- Veterans’ benefits
- Unemployment compensation
- Taxable alimony payments
- Distributions from IRAs or certain qualified retirement plans
- Interest from municipal bonds
- Gain on the sale of a personal residence excluded under Section 121
Net investment income does not include earned income or pension income.
What is the threshold for the Additional Medicare Tax for a single filer?
$200,000
What is the rate of the Additional Medicare Tax?
0.9%
How is the Net Investment Income Tax calculated?
(NIIT)
The NIIT is 3.8% of the lesser of:
- Net investment income, or
- The amount by which modified adjusted gross income (MAGI) exceeds:
- $250,000 for MFJ or QSS
- $125,000 for MFS
- $200,000 for all others
What is the Additional Medicare Tax?
A 0.9% tax on earned income that exceeds:
- $250,000 for Married Filing Jointly
- $125,000 for Married Filing Separately
- $200,000 for all other filers
The Additional Medicare Tax only applies to earned income.
How does the Additional Medicare Tax apply to self-employed taxpayers?
They must pay the full amount of the Additional Medicare Tax on earned income above the threshold. They cannot deduct one-half of the tax.
For married couples filing jointly, what is the threshold for the Additional Medicare Tax?
$250,000
How can taxpayers avoid underpayment penalties related to the NIIT?
Taxpayers may need to adjust their withholding or make estimated payments to avoid underpayment penalties.
What happens if an employer withholds the Additional Medicare Tax for a married employee who earns more than $200,000 but the couple’s combined income is below the threshold?
The withheld tax is treated as an overpayment and can be applied against other taxes owed on their joint tax return.
True or False:
The Premium Tax Credit is available if the taxpayer can obtain employer-sponsored coverage.
False
What must a taxpayer do if they receive advance Premium Tax Credit payments?
File a tax return and reconcile the advance payments using Form 8962.
True or False:
The Additional Medicare Tax has an employer share.
False
The Additional Medicare Tax is imposed entirely on the employee or the self-employed taxpayer.
What form does a taxpayer use for ACA Premium Tax Credit reporting and reconciliation?
Form 1095-A
(Health Insurance Marketplace Statement)
What changes can affect the amount of the Premium Tax Credit?
Changes in family size, eligibility for government-sponsored or employer-sponsored health coverage, a move to a new address, or changes in the number of dependents.
What filing form is used to compute the Net Investment Income Tax?
Form 8960
(Net Investment Income Tax—Individuals, Estates, and Trusts)
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Essential Tax Law Figures for Individuals43
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Unit 1: Preliminary Work with Taxpayer Data80
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Unit 2: Determining Filing Status and Residency45
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Unit 3: Dependency Relationships33
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Unit 4: Taxable and Nontaxable Income85
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Unit 5: Investment Income and Expenses32
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Unit 6: Calculating the Basis of Assets37
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Unit 7: Capital Gains and Losses45
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Unit 8: Nonrecognition Property Transactions48
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Unit 9: Rental and Royalty Income52
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Unit 10: Other Taxable Income69
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Unit 11: Adjustments to Gross Income51
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Unit 12: Standard Deduction and Itemized Deductions80
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Unit 13: Individual Tax Credits91
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Unit 14: The ACA and the Premium Tax Credit25
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Unit 15: Additional Taxes and Credits40
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Unit 16: Individual Retirement Accounts77
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Unit 17: Foreign Financial Reporting44
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Unit 18: Estate and Gift Taxes for Individuals52
