Income Tax Training School. Calculating The PTC. & Complying With The Affordable Care Act

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1 A & B Office Income Tax Training School Calculating The PTC & Complying With The Affordable Care Act Form 8962 Real And Practical Scenarios Answer Client Questions On The ACA Understand The ObamaCare Penalties & Credits Understand Form 1095-A & Its Role In A Return Understand How To Share A Health Insurance Policy With Another Taxpayer Other Important Affordable Care Act Topics Self-Study Course For Tax Preparers! Form 8962 Department of the Treasury Internal Revenue Service 2014/2015 Premium Tax Credit (PTC) Attach to Form 1040, 1040A, or 1040NR. Information about Form 8962 and its separate instructions is at www Name shown on your return Your social security number Part 1: Annual and Monthly Contribution Amount 1 Family Size: Enter the number of exemptions from Form 1040 or Form 1040A, line 6d, or F 2 a Modified AGI: Enter your modified AGI (see instructions) a b Enter total of yo AGI (see instruc 3 Household Income: Add the amounts on lines 2a and 2b Federal Poverty Line: Enter the federal poverty amount as determined by the family poverty table for your state of residence during the tax year (see instructions). Che federal poverty table used. a Alaska b Hawaii 5 Household Income as a Percentage of Federal Poverty Line: Divide line 3 by line 4. E percentage. (For example, for enter the result as 154, for enter as 155.) ( 6 Is the result entered on line 5 less than or equal to 400%? (See instructions if the Yes. Continue to line 7. No. You are not eligible to receive PTC. If you received advance paymen to report your Excess Advance PTC Repayment amount. 7 Applicable Figure: Using your line 5 percentage, locate your applicable figure 8 a Annual Contribution for Health Care: b Mo Multiply line 3 by line a Part 2: Premium Tax Credit Claim and Reconciliation of Adva 9 Did you share a policy with another taxpayer or get married during the Yes. Skip to Part 4, Shared Policy Allocation, or Part 5, Alternative Calcul A for your tax household include coverage for January through e 11. Compute your annual PTC. Skip lin lin but um C. A Interactive Self-Study Course Published: November 6, 2015

2 C O N T E N T Chapter 1 Calculating The Premium Tax Credit On Form Introduction...1 A Multiyear Timetable...1 Individual Health Care Mandate...3 Form 1095-A. Health Insurance Marketplace Statement...4 Form 1095-B. Health Coverage...5 Form 1095-C. Employer-Provided Health Ins. Offer And Coverage... 6 Form Premium Tax Credit (PTC)...7 Form Health Coverage Exemptions...8 Scenario # 1: Jeff Files As Single...9 Questions And Answers...12 Scenario # 2: Jeff Increased His Salary...13 Questions And Answers...15 Scenario # 3: Jeff Claims His Son...17 Questions And Answers...19 Scenario # 4: Jeff Got Married & will File as MFJ...20 Questions And Answers...22 Scenario # 5: The Couple File As MFJ But Elena Wants To Claim The Alternative Calculation...24 Scenario # 6: Elena Files As MFS & Claims Domestic Abuse...26 Chapter 2 Health Insurance Shared Policy Allocation...27 Scenario # 1: David And Kara Allocate Amounts Of Health Insurance Due To Divorce In 2014, Children Are Claimed By Another Taxpayer...28 Allocation Worksheet For Kara & David...28 Allocation Worksheet For Lydia...28 Solution For Kara Evans...29 Solution For David Miller...32 Solution For Lydia Fernandez...35 Scenario # 2: David And Kara Allocate Amounts Of Health Insurance Due To Divorce In 2014, Children Are Moved Away In May Allocation Worksheet for Kara & David...38 Solution For Kara Evans...38 Solution For David Miller...39 Allocation Worksheet For Lydia...39 Allocation Worksheet For Kimberly...39 Solution For Lydia Fernandez...39 Solution For Kimberly Questions And Answers Worksheet For Divorced Or Legally Separated Taxpayers...41 Chapter 3 Insurance Factors For Employers and Self-Employed...42 What Employers Need to Know Or More Employees...43 Fewer than 50 Employees...42 Questions And Answers...45 Self-Employed Taxpayers...46 Questions And Answers...46 Scenario # 1 Fred Richo Is a Self-Employed...47 Summary of Fred s Form Form 8962 for Fred Richo...49 Questions and Answers...50 Glossary...51 Luck Is What Happens When Preparation Meets Opportunity Vince Lombardi Football Coach. DISCLAIMER OF LIABILITY: All information in this Mini-Course (collectively, Information ) is for educational and information purposes only and is not legal or tax advice or opinions on any specific matters. Tax laws and regulations change frequently and their application can vary widely based upon the specific facts and circumstances involved. You acknowledge that all decisions regarding the tax treatment of items reflected on tax returns prepared by you are made solely by you and that use of Information does not relieve you of responsibility, including those to any third party, for the preparation, content accuracy, and review of such returns. You further acknowledge that you are not relying upon A & B Office for advice regarding the appropriate tax treatment of items reflected on tax returns. The provision of Information by A & B Office is not intended to create, and your receipt does not constitute, any form of relationship between A & B Office and you. You, and not A & B Office are responsible for the applicability and accuracy of Information as it relates to your practice or to your clients.

3 Form Premium Tax Credit (PTC). Starting in January 2014, a new federal tax credit will be available to help people purchase health insurance in the newly established health insurance Marketplaces (also known as Exchanges). These Premium Tax Credits will be available immediately upon enrollment in an insurance plan so that families can receive help when they need it rather than having to wait until they file tax returns. Payments of the premium tax credits can go directly to insurance companies to pay a share of the monthly health insurance premiums charged to individuals and families. Any advance payments received by the insurance companies during the year are subtracted from the premium tax credit calculated on the tax return. Taxpayers may be entitled to more credit or may have to pay a portion of the subsidy back which impacts any tax refund or balance due. Whether taxpayers receive a subsidy during the year or not, they must file Form 8962 with their federal income tax return in order to reconcile the subsidy and credit. Note: At the time of printing, 2015 forms were not available. Form 8962 Department of the Treasury Internal Revenue Service Name shown on your return Form 8962 Premium Tax Credit (PTC) Attach to Form 1040, 1040A, or 1040NR. Information about Form 8962 and its separate instructions is at Part 1: Annual and Monthly Contribution Amount Your social security number 1 Family Size: Enter the number of exemptions from Form 1040 or Form 1040A, line 6d, or Form 1040NR, line 7d. 1 2 a Modified AGI: Enter your modified AGI (see instructions) a b Enter total of your dependents' modified AGI (see instructions) b 3 Household Income: Add the amounts on lines 2a and 2b Federal Poverty Line: Enter the federal poverty amount as determined by the family size on line 1 and the federal poverty table for your state of residence during the tax year (see instructions). Check the appropriate box for the federal poverty table used. a Alaska b Hawaii c Other 48 states and DC 4 OMB No Attachment Sequence No. 73 Relief (see instructions) 5 Household Income as a Percentage of Federal Poverty Line: Divide line 3 by line 4. Enter the result rounded to a whole percentage. (For example, for enter the result as 154, for enter as 155.) (See instructions for special rules.) 5 % 6 Is the result entered on line 5 less than or equal to 400%? (See instructions if the result is less than 100%.) Yes. Continue to line 7. No. You are not eligible to receive PTC. If you received advance payment of PTC, see the instructions for how to report your Excess Advance PTC Repayment amount. 7 Applicable Figure: Using your line 5 percentage, locate your applicable figure on the table in the instructions a Annual Contribution for Health Care: b Monthly Contribution for Health Care: Divide Multiply line 3 by line a line 8a by 12. Round to whole dollar amount 8b Part 2: Premium Tax Credit Claim and Reconciliation of Advance Payment of Premium Tax Credit 9 Did you share a policy with another taxpayer or get married during the year and want to use the alternative calculation? (see instructions) Yes. Skip to Part 4, Shared Policy Allocation, or Part 5, Alternative Calculation for Year of Marriage. No. Continue to line Do all Forms 1095-A for your tax household include coverage for January through December with no changes in monthly amounts shown on lines 21 32, columns A and B? Yes. Continue to line 11. Compute your annual PTC. Skip lines and continue to line 24. Annual Calculation 11 Annual Totals Monthly Calculation 12 January 13 February 14 March 15 April 16 May 17 June 18 July 19 August 20 September 21 October 22 November 23 December A. Premium Amount (Form(s) 1095-A, line 33A) A. Monthly Premium Amount (Form(s) 1095-A, lines 21 32, column A) B. Annual Premium Amount of SLCSP (Form(s) 1095-A, line 33B) B. Monthly Premium Amount of SLCSP (Form(s) 1095-A, lines 21 32, column B) C. Annual Contribution Amount (Line 8a) C. Monthly Contribution Amount (Amount from line 8b or alternative marriage monthly contribution) D. Annual Maximum Premium Assistance (Subtract C from B) D. Monthly Maximum Premium Assistance (Subtract C from B) No. Continue to lines Compute your monthly PTC and continue to line 24. E. Annual Premium Tax Credit Allowed (Smaller of A or D) E. Monthly Premium Tax Credit Allowed (Smaller of A or D) This Form Needs To Be Attached To Form Total Premium Tax Credit: Enter the amount from line 11E or add lines 12E through 23E and enter the total here Advance Payment of PTC: Enter the amount from line 11F or add lines 12F through 23F and enter the total here Net Premium Tax Credit: If line 24 is greater than line 25, subtract line 25 from line 24. Enter the difference here and on Form 1040, line 69; Form 1040A, line 45; or Form 1040NR, line 65. If you elected the alternative calculation for marriage, enter zero. If line 24 equals line 25, enter zero. Stop here. If line 25 is greater than line 24, leave this line blank and continue to line Part 3: Repayment of Excess Advance Payment of the Premium Tax Credit 27 Excess Advance Payment of PTC: If line 25 is greater than line 24, subtract line 24 from line 25. Enter the difference here Repayment Limitation: Using the percentage on line 5 and your filing status, locate the repayment limitation amount in the instructions. Enter the amount here Excess Advance Premium Tax Credit Repayment: Enter the smaller of line 27 or line 28 here and on Form 1040, line 46; Form 1040A, line 29; or Form 1040NR, line F. Annual Advance Payment of PTC (Form(s) 1095-A, line 33C) F. Monthly Advance Payment of PTC (Form(s) 1095-A, lines 21 32, column C) For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No Z Form 8962 (2014) 7

4 APTC. If the taxpayer chooses to receive advance payments for the credit, he/she will need to subtract the total of the payments made to the insurance company from the Premium Tax Credit calculated on his 2014/2015 tax return. To better understand the credits, below we explain how the calculation is performed. Income And Household Size. Your annual income, along with the number of people in your household, greatly impacts your insurance rate because this information is used to determine your eligibility for subsidies. Think of subsidies like a credit or a discount that can be applied directly to your monthly premium. If you qualify, the lower the income of your household, the greater amount the subsidy will be. ObamaCareUSA.org automatically calculates your subsidy eligibility based on the information you provide. Scenario # 1: Jeff Files As Single On January 16, 2015, Jeff Smith (33) came to your office to preparer his 2014 tax return. Jeff is a Single person, he reported to Health Insurance Marketplace agent on December 2013 that he would earn $18,000 (estimated) in 2014, and pays $125 a month for ObamaCare coverage. Jeff is not able to get affordable coverage through his employer. Since Jeff bought health insurance through the government health insurance marketplace in 2014, he received Form 1095-A in the mail and it is shown below. Form 1095-A Department of the Treasury Internal Revenue Service Health Insurance Marketplace Statement Information about Form 1095-A and its separate instructions is at CORRECTED OMB No Part I Recipient Information 1 Marketplace identifier 2 Marketplace-assigned policy number 3 Policy issuer's name California 92815CA LA Care 4 Recipient's name 5 Recipient's SSN 6 Recipient's date of birth Jeff Smith /01/ Recipient's spouse's name 8 Recipient's spouse's SSN 9 Recipient's spouse's date of birth 10 Policy start date 11 Policy termination date 12 Street address (including apartment no.) 01/01/14 12/31/ Oxnard St 13 City or town 14 State or province 15 Country and ZIP or foreign postal code Los Angeles CA Part II Coverage Household A. Covered Individual Name B. Covered Individual SSN C. Covered Individual Date of Birth D. Covered Individual Start Date E. Covered Individual Termination Date 16 Jeff Smith /01/ /01/14 12/31/ Part III Household Information Month A. Monthly Premium Amount B. Monthly Premium Amount of Second Lowest Cost Silver Plan (SLCSP) C. Monthly Advance Payment of Premium Tax Credit 21 January 22 February 23 March 24 April 25 May 26 June 27 July 28 August 29 September 30 October 31 November 32 December 33 Annual Totals 2, , For Privacy Act and Paperwork Reduction Act Notice, see separate instructions. Cat. No Q Form 1095-A (2014) 9

5 Column A. This column is the monthly premium amount for the policy in which Jeff enrolled. Column B. This column is the monthly premium amount for the Second Lowest Cost Silver Plan (SLCSP) that the Marketplace has determined applies to members of Jeff s family enrolled in the coverage. The premium for the applicable SLCSP is used to compute his monthly advance credit payments and the premium tax credit Jeff claims on his return. Note that in order to calculate his subsidy amount correctly, he ll need to know the cost of the Second Lowest Cost Sliver Plan in his state s marketplace. If Jeff didn t get a 1095-A, or if he got the wrong one, he should wait until he gets the right one and follow up with the Marketplace. Column C. This column is the monthly amount of advance credit payments that were made to the insurance company on Jeff s behalf to pay for all or part of the premiums for his coverage. Note: This form does not directly show the payment of $125 Jeff is making monthly for his health insurance. Furthermore, you can calculate it by subtracting column A minus column C. How To Calculate The Premium Tax Credit (PTC): A Annual premium charged by the insurance company. $2,400 A B Second Lowest Cost Silver Plan (SLCSP) is the second cheapest health $2,280 B plan in the Silver category that was available to Jeff in 2014 (benchmark). C The annual contributions (subsidy) by the government calculated $778 C according to the Jeff s income based on percentage of federal poverty (157%) - calculated by your tax software. D Maximum premium assistance - deduct B minus C. $1,502 D E Premium tax credit - smaller of A or D. $1,502 E F Advance payment of PTC. $900 F Conclusion: 1. In this case, the excess of $602 ($1,502 - $900) is refundable to Jeff on line 69 of Form As tax preparer, you will only enter information from Form 1095-A (very carefully) in your tax software. 3. Your tax software will automatically calculate the federal poverty figures and the other relevant numbers needed to calculate the refund or the payment for your client. Reporting the refund of $602 is shown below. Form Jeff s Income Of $18, Add lines 56 through 62. This is your total tax Payments 64 Federal income tax withheld from Forms W-2 and estimated tax payments and amount applied from 2013 return 65 If you have a 66a Earned income credit (EIC) a qualifying child, attach b Nontaxable combat pay election 66b Schedule EIC. 67 Additional child tax credit. Attach Schedule American opportunity credit from Form 8863, line Net premium tax credit. Attach Form Amount paid with request for extension to file Excess social security and tier 1 RRTA tax withheld Credit for federal tax on fuels. Attach Form Credits from Form: a 2439 b Reserved c Reserved d Add lines 64, 65, 66a, and 67 through 73. These are your total payments Refund 75 If line 74 is more than line 63, subtract line 63 from line 74. This is the amount you overpaid 75 76a Amount of line 75 you want refunded to you. If Form 8888 is attached, check here. 76a Direct deposit? See instructions. Amount You Owe X X X X X X X X X b Routing number c Type: Checking Savings d Account number X X X X X X X X X X X X X X X X X 77 Amount of line 75 you want applied to your 2015 estimated tax Amount you owe. Subtract line 74 from line 63. For details on how to pay, see instructions

6 Form 8962 Department of the Treasury Internal Revenue Service Name shown on your return Form Couple Claimed Alternative Calculation Premium Tax Credit (PTC) Attach to Form 1040, 1040A, or 1040NR. Information about Form 8962 and its separate instructions is at Your social security number Jeff & Elena Smith Part 1: Annual and Monthly Contribution Amount 1 Family Size: Enter the number of exemptions from Form 1040 or Form 1040A, line 6d, or Form 1040NR, line 7d. 1 2 a Modified AGI: Enter your modified AGI (see instructions) a b Enter total of your dependents' modified AGI (see instructions) b 3 Household Income: Add the amounts on lines 2a and 2b Federal Poverty Line: Enter the federal poverty amount as determined by the family size on line 1 and the federal poverty table for your state of residence during the tax year (see instructions). Check the appropriate box for the federal poverty table used. a Alaska b Hawaii c Other 48 states and DC 4 OMB No Attachment Sequence No. 73 Relief (see instructions) 5 Household Income as a Percentage of Federal Poverty Line: Divide line 3 by line 4. Enter the result rounded to a whole percentage. (For example, for enter the result as 154, for enter as 155.) (See instructions for special rules.) % 6 Is the result entered on line 5 less than or equal to 400%? (See instructions if the result is less than 100%.) Yes. Continue to line 7. No. You are not eligible to receive PTC. If you received advance payment of PTC, see the instructions for how to report your Excess Advance PTC Repayment amount. 7 Applicable Figure: Using your line 5 percentage, locate your applicable figure on the table in the instructions a Annual Contribution for Health Care: b Monthly Contribution for Health Care: Divide Multiply line 3 by line a 2,838. line 8a by 12. Round to whole dollar amount 8b 237. Part 2: Premium Tax Credit Claim and Reconciliation of Advance Payment of Premium Tax Credit 9 Did you share a policy with another taxpayer or get married during the year and want to use the alternative calculation? (see instructions) Yes. Skip to Part 4, Shared Policy Allocation, or Part 5, Alternative Calculation for Year of Marriage. No. Continue to line Do all Forms 1095-A for your tax household include coverage for January through December with no changes in monthly amounts shown on lines 21 32, columns A and B? Yes. Continue to line 11. Compute your annual PTC. Skip lines and continue to line 24. Annual Calculation 11 Annual Totals Monthly Calculation A. Premium Amount (Form(s) 1095-A, line 33A) A. Monthly Premium Amount (Form(s) 1095-A, lines 21 32, column A) B. Annual Premium Amount of SLCSP (Form(s) 1095-A, line 33B) B. Monthly Premium Amount of SLCSP (Form(s) 1095-A, lines 21 32, column B) 37,000. C. Annual Contribution Amount (Line 8a) C. Monthly Contribution Amount (Amount from line 8b or alternative marriage monthly contribution) D. Annual Maximum Premium Assistance (Subtract C from B) D. Monthly Maximum Premium Assistance (Subtract C from B) No. Continue to lines Compute your monthly PTC and continue to line 24. E. Annual Premium Tax Credit Allowed (Smaller of A or D) E. Monthly Premium Tax Credit Allowed (Smaller of A or D) 26 Net Premium Tax Credit: If line 24 is greater than line 25, subtract line 25 from line 24. Enter the difference here and on Form 1040, line 69; Form 1040A, line 45; or Form 1040NR, line 65. If you elected the alternative calculation for marriage, enter zero. If line 24 equals line 25, enter zero. Stop here. If line 25 is greater than line 24, leave this line blank and continue to line Part 3: Repayment of Excess Advance Payment of the Premium Tax Credit 27 Excess Advance Payment of PTC: If line 25 is greater than line 24, subtract line 24 from line 25. Enter the difference here Repayment Limitation: Using the percentage on line 5 and your filing status, locate the repayment limitation amount in the instructions. Enter the amount here F. Annual Advance Payment of PTC (Form(s) 1095-A, line 33C) F. Monthly Advance Payment of PTC (Form(s) 1095-A, lines 21 32, column C) 29 Excess Advance Premium Tax Credit Repayment: Enter the smaller of line 27 or line 28 here and on Form 1040, line 46; Form 1040A, line 29; or Form 1040NR, line For Paperwork Reduction Act Notice, see your tax return instructions. BA REV 11/14/14 PR Form 8962 (2014) 2 37, , January 13 February 14 March 15 April 16 May 17 June 18 July 19 August September October November December Total Premium Tax Credit: Enter the amount from line 11E or add lines 12E through 23E and enter the total here. 24 2, Advance Payment of PTC: Enter the amount from line 11F or add lines 12F through 23F and enter the total here. 25 1,

7 Solution For Kara Evans Form 1095-A For Kara Allocating Health Care Policy Amounts Form 1095-A Health Insurance Marketplace Statement 2014 G Keep for your records QuickZoom to Form 1095-A, Health Insurance Marketplace Statement QuickZoom to Form 8962, Premium Tax Credit (PTC) Name(s) Shown on Return Kara Evans Owned by (check one): X Taxpayer Spouse Part I Recipient Information Spouse covered: Your Social Security No Marketplace Identifier 2 Marketplace-assigned Pol. No. 3 Policy Issuer s Name California CA Health Net 4 Recipient s name 5 Recipient s SSN 6 Recipient s DOB Kara Evans /01/82 7 Recipient s spouse s name 8 Spouse s SSN 9 Spouse s DOB David Miller /01/79 10 Policy start date 11 Policy termination date 12 Street address (including apartment no.) 01/01/14 09/30/ Oxnard st 13 City or town 14 State or province 15 Country and ZIP or foreign postal code Los Angeles CA Part II Coverage Household Check this box to populate the Name, SSN, and DOB for everyone listed on the return in Part II. Note: Checking this box again will repopulate the information below and overwrite existing entries. A. Covered Individuals Name B. Covered Covered Individual First Individual SSN C. Date of Birth D. Start Date E.Termination Date Last 16Kara Evans /01/82 01/01/14 09/30/ x Part III Household Information Month Copy Feature A. Monthly Premium Amount B. Monthly Premium Amt C. Monthly Advance Payment See help for of Second Lowest Cost of Premium Tax Credit more info. Silver Plan (SLCSP) JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER Annual Totals 6,300. 5,850. 3,

8 Form 8962 For Kara Allocating Health Care Policy Amounts (2/2) David s SSN Part 4: Shared Policy Allocation Complete the following information for up to four shared policy allocations. See instructions for allocation details. Form 8962 (2014) Page 2 Shared Policy Allocation 1 30 a Policy Number (Form 1095-A, line 2) b SSN of taxpayer sharing allocation c Allocation start month d Allocation stop month CA Allocation percentage applied to monthly amounts e. Premium Percentage f. SLCSP Percentage g. Advance Payment of the PTC Percentage Shared Policy Allocation 2 31 a Policy Number (Form 1095-A, line 2) b SSN of taxpayer sharing allocation c Allocation start month d Allocation stop month Allocation percentage applied to monthly amounts e. Premium Percentage f. SLCSP Percentage g. Advance Payment of the PTC Percentage Shared Policy Allocation 3 32 a Policy Number (Form 1095-A, line 2) b SSN of taxpayer sharing allocation c Allocation start month d Allocation stop month Allocation percentage applied to monthly amounts e. Premium Percentage f. SLCSP Percentage g. Advance Payment of the PTC Percentage Shared Policy Allocation 4 33 a Policy Number (Form 1095-A, line 2) b SSN of taxpayer sharing allocation c Allocation start month d Allocation stop month Allocation percentage applied to monthly amounts e. Premium Percentage f. SLCSP Percentage g. Advance Payment of the PTC Percentage 34 Have you completed shared policy allocation information for all allocated Forms 1095-A? Yes. Multiply the amounts on Form 1095-A by the allocation percentages entered by policy. Add allocated amounts across all allocated policies with amounts for non-allocated policies from Forms 1095-A, if any, to compute a combined total for each month. Enter the combined total for each month on lines 12 23, columns A, B, and F. Compute the amounts for lines 12 23, columns C E, and continue to line 24. No. See the instructions to report additional shared policy allocations. Part 5: Alternative Calculation for Year of Marriage Complete line(s) 35 and/or 36 to elect the alternative calculation for year of marriage. For eligibility to make the election, see the instructions for line 9. To complete line(s) 35 and/or 36 and compute the amounts for lines 12 23, see the instructions for this Part Alternative entries for your SSN 36 Alternative entries for your spouse's SSN REV 11/14/14 PR a Alternative family size b Monthly contribution c Alternative start month d Alternative stop month a Alternative family size b Monthly contribution c Alternative start month d Alternative stop month Form 8962 (2014) 31