HDAP & the MA Health Connector: Understanding Premium Tax Credits & Tax Reconciliation

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Department of Public Health George Hastie, MPH BRIDGE Team Project Manager Alex Moran

1 HDAP & the MA Health Connector: Understanding Premium Tax Credits & Tax Reconciliation January 9 th, 2017 Dennis Canty Federal Grants Specialist Office of HIV/AIDS Massachusetts Department of Public Health George Hastie, MPH BRIDGE Team Project Manager Alex Moran BRIDGE Team Coordinator BRIDGE = Benefits, Resources, & Infectious Disease Guidance & Engagement 1

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5 Overview Review of Premium Tax Credits (PTCs) PTC-Related Tax Forms and Reconciliation HDAP/CHII Requirements for PTCs o Paying PTC adjustments to the IRS on behalf of clients o Collecting PTC-related refunds from clients 5

Open Enrollment Reminder Open Enrollment is the period of time during which individuals and families who are eligible for a plan through the Health Connector can enroll into

6 Open Enrollment Reminder Open Enrollment is the period of time during which individuals and families who are eligible for a plan through the Health Connector can enroll into coverage. For 2017, the Open Enrollment Period is November 1 st, 2016 January 31 st, January 1 coverage Nov 1 Dec 23 February 1 coverage Dec 24 Jan 23 March 1 coverage Jan 24 Jan 31 6

7 Premium Tax Credits 7

Consider Plan Options with Case Manager + BRIDGE November January Open Enrollment Plan Selection + initial APTC calculated Let HDAP/CHII know new premium + APTC amount April October Late filing

8 Consider Plan Options with Case Manager + BRIDGE November January Open Enrollment Plan Selection + initial APTC calculated Let HDAP/CHII know new premium + APTC amount April October Late filing period; federal refunds processed The Premium Tax Credit Cycle January Health Connector sends out 1095-A for prior year Amend Taxes if necessary; look out for refund April 15 Federal Income Tax Returns Due (Including Form 8962) Work with Case Manager + Tax Preparer + BRIDGE 8

9 What are Premium Tax Credits (PTCs)? Premium Tax Credits are subsidies that help individuals and families pay for health insurance purchased through the MA Health Connector. The amount of PTCs a household receives, if any, is based on the annual income they estimated on their MA Health Connector application. * 9

10 HRSA/HAB Policy on Tax Credit Reconciliation (PCN 14-01) AIDS Drug Assistance Programs (ADAPs) are required by HRSA to vigorously pursue any excess premium tax credit a client receives from the IRS. ADAPs can pay Marketplace health-insurance-related tax payments owed to the IRS on behalf of ADAP clients. 10

11 What are Premium Tax Credits (PTCs)? PTCs can be received in one of two ways: o In advance - Advance Premium Tax Credits (APTCs) are paid directly to the insurer each month and lower the cost of one s monthly health insurance premium; or o Lump sum people can claim the Premium Tax Credit in a lump sum when filing their federal income taxes for the previous year. To receive premium assistance from CHII, clients must apply the full amount that they are eligible for in advance. 11

12 Why does this matter? If CHII is paying a Health Connector premium on client s behalf, then the client must take the full amount of PTCs they are eligible for in advance (applied monthly). If APTCs are used to lower the cost of a client s monthly health insurance premium, the client is required to reconcile this amount when filing a federal income tax return. If people do not file taxes and reconcile their APTCs, they will lose their ConnectorCare eligibility and will owe the IRS. Note: nearly 400 CHII Clients received APTCs in 2016! 12

13 If you get APTC do you agree to file a federal income tax return? 13

14 PTC Eligibility Requirements Individuals and families may be eligible for PTCs if they: 1) Enroll in a health plan through the MA Health Connector; 2) Are not eligible for affordable and adequate employer coverage or government plan (i.e., VA or Medicare); 3) Have household income between 100% and 400% FPL (between $11,770-$47,080 for an individual); 4) Agree to file taxes (if married must file jointly except in specific circumstances). In tax year 2016, 400% FPL = $47,080 for a single person 14

15 Reconciliation Process Reconciliation is done by comparing two figures: 1. The amount of APTCs applied during the year (paid by the IRS directly to the health plan). 2. The PTC that you actually qualify for based on your household s actual income for that year. If there s a difference between the two figures, this will affect the amount of your refund or taxes owed. 15

16 Reconciliation Process If your actual income for 2016 was more than your estimated income, the government has overpaid you and you will have to pay back some of the money that lowered your monthly insurance premium payments (APTCs). If your actual income for 2016 was less than your estimated income, the government has underpaid you and you will receive the difference as an extra credit on your federal tax return. 16

Reconciliation Process: Important Considerations If you received APTCs (including ConnectorCare) in 2015 and/or 2016 and you do not file a 2015 and/or 2016 tax return and

17 Reconciliation Process: Important Considerations If you received APTCs (including ConnectorCare) in 2015 and/or 2016 and you do not file a 2015 and/or 2016 tax return and reconcile the APTCs you received: you will not be eligible for APTCs or ConnectorCare in AND- The IRS will contact you to pay back some or all of the 2015 & 2016 APTCs. 17

18 PTC-Related Tax Forms and Reconciliation 18

19 Required Documents for Reconciliation IRS Form Purpose Origin 1095-A Health Coverage through the MA Health Connector Form 8962 Premium Tax Credit Instructions for Form US Individual Income Tax Return Verifies type and period of coverage for 2016, premium amounts, and APTCs applied Adjusts total tax credit amount by comparing reported and actual income Instruction guide that client or their tax preparer needs to complete Form 8962 Required Tax Document MA Health Connector Sent out each January IRS must be filled out using the 1095-A IRS Available online IRS - Must be filled out by all APTC recipients = APTC recipients cannot file using Form 1040-EZ! 19

20 Tax Forms and the Reconciliation Process Step 1: Receive Form 1095-A From the MA Health Connector, includes: A. monthly premium amount; B. the monthly premium amount of the second-lowest-cost silver plan (the benchmark federal government uses to determine how much a person will receive in APTCs) C. the amount you received in APTCs every month. 20

Tax Forms: Form 8962 Step 2: Complete Form 8962 When you file your federal taxes, use the information from the 1095-A to fill out IRS Form 8962.

21 Tax Forms: Form 8962 Step 2: Complete Form 8962 When you file your federal taxes, use the information from the 1095-A to fill out IRS Form This compares the amount received in APTCs to the amount that you were entitled to based on your actual federal income reported for To complete this form you must use the table provided in Instructions for Form

22 Tax Forms: Form 8962, Continued Match to the 1095-A 22

23 Tax Forms and the Reconciliation Process Step 2 Continued: Form 8962 Finally, record the amount owed to you as a refund (on line 26) or the excess payment you owe back to the IRS (line 29). 23

Tax Forms and the Reconciliation Process Step 3: Putting

specific boxes to document either: money owed to you as a

overpayment, which needs to be included with your tax

24 Tax Forms and the Reconciliation Process Step 3: Putting It Together on the Federal Tax Return Form 1040 includes specific boxes to document either: money owed to you as a refund; or money you owe to the IRS because of an overpayment, which needs to be included with your tax return. Line 46 on IRS Form 1040 indicates excess PTCs one owes to the IRS. 24

25 Tax Forms and the Reconciliation Process Tax liabilities (money you may owe) and refunds (money owed to you) are assessed in total. This means that if you owe the IRS because of a premium tax credit overpayment, the IRS will take the payment directly from your income tax refund if you are due to receive one. On the other hand, if you are owed a refund from the IRS because of a premium tax credit underpayment, the IRS will first look to whether you owe other income taxes for that year and apply the refund to those liabilities first. 25

26 HDAP/CHII Requirements for PTCs 26

27 CHII Requirements for PTCs If CHII is paying a Health Connector premium for a client, then the client must take the full amount of PTCs in advance (applied monthly), if eligible. CHII enrollees with Health Connector Plans must submit the following copies of 2016 federal tax forms to HDAP/CHII. IRS Form 1040 (first two pages): IRS Form 8962: HC Form 1095-A mailed from MA Health Connector ( ) 27

28 CHII Requirements for PTCs If a client owes a payment to the IRS because they received too much in APTCs in 2015, HDAP/CHII may be able to pay this amount to the IRS on the client s behalf. If client gets a refund from the IRS related to APTCs and HDAP/CHII paid for their health insurance premiums, the net Premium Tax Credit portion of their 2015 federal income tax refund must be paid by the client to HDAP/CHII. Payment Flow Chart HDAP/CHII Net PTC Excess PTC Client IRS Tax liability & refund

29 CHII Requirements for PTCs: Agreement Regarding Reconciliation of Premium Tax Massachusetts Credits H I V D R U G A S S I S T A N C E P R O G R A M Agreement Regarding Reconciliation of Premium Tax Credits Clients receiving premium assistance from CHII for MA Health Connector plans (including ConnectorCare) must sign, date, and return this agreement as soon as possible. Please sign, date and return this form immediately. You can FAX this form to (617) or MAIL it to HDAP/CHII in the stamped envelope provided, to: CRI/HDAP, ATTN: CHII, 38 Chauncy Street, Suite 500, Boston, MA REQUIRED I, (Name), agree to immediately make payment to Community Research Initiative (CRI) for any federal tax refund I receive from the Internal Revenue Service (IRS) for Premium Tax Credits resulting from health insurance premium payments made on my behalf by the Massachusetts HDAP/CHII program. I understand that this portion of my tax refund is the sole property of the HDAP/CHII program, which expects to receive payment within 10 days of my having received the refund from the IRS. I understand that failure to return this portion of my tax refund may negatively impact any future enrollment into the HDAP/CHII health insurance premium assistance program. By signing below, I agree to these terms and conditions. I also understand that if I owe money to the IRS as a result of overpayment of a Premium Tax Credit due to underestimating my 2015 income, I hereby authorize HDAP/CHII to make a payment to the IRS on my behalf. HDAP/CHII can make this payment if I provide HDAP/CHII with a copy of my complete federal tax return. Signature: Date: Check box if you DO NOT want HDAP/CHII to make payment to the IRS on your behalf. Please contact HDAP/CHII at with any questions you may have. 38 Chauncy Street Suite 500 Boston, MA TEL TOLL FR E E FA X This program is supported by funds from the U.S. Health Resources and Servic es Administration and the Massachusetts Department of Public Health, and is administered by Community Research Initiative of New England 29

30 CHII Requirements for PTCs: Agreement Regarding Reconciliation of Premium Tax Credits Client agrees to send HDAP/CHII any refund from the IRS related to APTC underpayment. Payment of this refund may be made in the form of check or money order and is expected within 10 days of receipt of the refund from the IRS. Failure to return the APTC portion of the tax refund may negatively impact future enrollment for CHII insurance premium assistance. Client provides authorization for CRI to make payment to the IRS on a client s behalf as a result of APTC overpayment (due to underestimation of income at time of application). (Client can opt out). 30

31 Reconciliation Process Example #1: Reconciling Rosa Client s 2016 Premium Tax Credits Rosa Client, a single tax filer enrolled in HDAP/CHII, estimated on her MA Health Connector application at the beginning of 2016 that her annual income for 2016 would be $25,000. Based on that estimate, she was approved for $75 a month in APTC. She enrolled in a plan with a $225 premium through the MA Health Connector effective 1/1/2016; CHII paid $150 of her monthly premiums for 12 months, while the other $75 was covered by APTCs. Suppose Rosa *actually* made $28,000 in

32 Example #1: Income Underestimated Actual Household Income (from 1040) Found by matching FPL in Table 2 In 8962 Instructions Corresponds to column C in Part II 32

33 33

34 Rosa enrolls in a plan through the MA Health Connector with both Advance Premium Tax Credits & HDAP/CHII Premium Assistance Monthly Amount Who Pays/Who Gets Refunded Monthly APTC (calculated at time of application) $75 The government pays this amount to the insurer each month Premium Amount left after APTC $150 Normally, Rosa would be left to pay the remainder; but since she is a CHII client, HDAP/CHII pays the remaining amount on her behalf Reconciliation: Did the consumer get the right amount of APTC each month? Actual Premium Tax Credit (calculated at tax time using Form 8962) Actual premium owed after APTC each month Amount owed at tax time due to overpayment $40 The IRS overpaid the APTC by $35 every month for each of the 12 months Rosa had coverage. This $185 results in an additional tax burden of $420 ($35 x 12 months). HDAP/CHII can pay this amount to the IRS on $420 Rosa s behalf. 34

35 Reconciliation Process Example: Reconciling Rosa s Premium Tax Credits When Rosa submits a copy of her 2016 federal income tax return & Form 8962 to HDAP/CHII in April, HDAP/CHII will pay $420 to the IRS on Rosa s behalf. 35

36 Reconciliation Process Example #2: Reconciling Rosa Client s 2016 Premium Tax Credits Rosa Client, a single tax filer, estimated on her MA Health Connector application at the beginning of 2016 that her annual income for 2016 would be $25,000. Based on that estimate, she was approved for $75 a month in APTC. She enrolled in a plan with a $225 premium through the MA Health Connector effective 1/1/2016 and CHII paid her monthly premiums for 12 months. Suppose Rosa actually made $18,000 in

37 Example #2: Income Overestimated Actual Household Income (from 1040) Found by matching FPL in Table 2 In 8962 Instructions Corresponds to column C in Part II 37

38 38

39 Rosa enrolls in a plan through the MA Health Connector with both Advance Premium Tax Credits & HDAP/CHII Premium Assistance Monthly Amount Who Pays/Who Gets Refunded Monthly APTC (calculated at time of application) $75 The government pays this amount to the insurer each month Premium Amount left after APTC $150 Normally, Rosa would be left to pay the remainder; but since she is a CHII client, HDAP/CHII pays the remaining amount on her behalf Reconciliation: Did the consumer get the right amount of APTC each month? Actual Premium Tax Credit (calculated at tax time using Form 8962) Actual premium owed after APTC each month Amount of additional Tax Credits awarded due to underpayment $158 The IRS underpaid the APTC by $83 every month for each of the 12 months Rosa had coverage. This $67 results in additional tax credits of $996 ($83 x 12 months). Rosa must refund this amount to HDAP/CHII. $996 39

40 Reconciliation Process Example: Reconciling Rosa s Premium Tax Credits After Rosa submits a copy of her 2016 federal income tax return to HDAP/CHII, she will also need to send a check or money order to HDAP/CHII for $996 (as a result of her PTCrelated refund). 40

41 Reconciliation Process: Key Takeaways Be on the lookout for the 1095-A (January 2017) Submit signed client authorizations to HDAP/CHII as soon as possible APTC recipients cannot reconcile using a 1040-EZ If a client s income ends up being higher than initially estimated: They will owe the IRS due to overpayment of APTCs. HDAP/CHII will pay this amount to the IRS on the client s behalf. If a client s income ends up being lower than initially estimated: They will be due a refund from the IRS due to underpayment of APTCs. The client will refund HDAP/CHII for each month HDAP/CHII paid a premium. 41

42 Health Connector Tips Report life changes to the MA Health Connector as they occur. Life changes may change the amount of APTC a client receives and reporting them may prevent extreme tax credit adjustments. Life changes include, among others,: o Changes in income; o Changes in health coverage, such as becoming newly eligible for Medicare; o Changes to one s household, like birth or adoption, becoming pregnant, and marriage or divorce. 42

43 Free Tax Resources Greater Boston Legal Services Low Income Tax Clinic o 197 Friend Street, Boston, MA o ; Legal Services Center of Harvard Law School Low Income Tax Clinic o 122 Boylston Street, Jamaica Plain, MA o ; Springfield Partners Low Income Tax Clinic o 721 State Street, Springfield, MA o Volunteer Income Tax Assistance (VITA) Program o Free tax assistance for those earning less than $54,000 o Multiple MA Locations: BRIDGE Team o o Advises active HDAP/CHII clients on reconciliation process & check Form 8962 for accuracy Will pay portion of tax burden incurred as a result of Excess APTCs to the IRS 43

44 Please note: CRI & HDAP/CHII will soon be MOVING! As of January 23, 2017, our new address will be: Community Research Initiative The Schrafft s City Center 529 Main Street, Suite 330 Boston, MA Our phone & fax numbers will remain the same 44

45 This webinar has been recorded and will be available as a webcast along with the slide deck on CRI s website: 45

46 How to Contact Us George Hastie, MPH BRIDGE Team Project Manager Lorraine Anyango Health Insurance Enrollment Specialist, BRIDGE Team Alex Moran BRIDGE Team Program Coordinator Massachusetts HIV Drug Assistance Program c/o CRI of New England 38 Chauncy Street, Suite 500, Boston, MA New address: (as of 1/23/17): Community Research Initiative The Schrafft s City Center 529 Main Street, Suite 330 Boston, MA (toll-free) (fax) 46

47 Questions? 47

HDAP & the MA Health Connector: Understanding Premium Tax Credits & Tax Reconciliation

HDAP & the MA Health Connector: Understanding Premium Tax Credits & Tax Reconciliation January 29, 2019 Dennis P. Canty Coordinator of HDAP and Federal Grants Massachusetts Department of Public Health