Chapter 14 (Credits) - Terms

Question 1

Advance Payments of the Premium Tax Credit

Answer 1

Payments of the premium tax credit that taxpayers elect to have paid in advance. Also known as advance credit payments, the payments are made directly to an insurance company on the taxpayer’s behalf in order to lower the taxpayer’s out-of-pocket cost for monthly health insurance premiums. Taxpayers who receive advance credit payments must file a tax return, even if they are not otherwise required to do so, to reconcile the amount of the advance payments with the amount of their actual premium tax credit. See also Premium Tax Credit.

Question 2

Affordable Care Act (ACA)

Answer 2

Also known as the health care law, the ACA consists of two separate pieces of legislation, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. The law contains comprehensive health insurance reforms and includes tax provisions that affect individuals, families, businesses, and insurers.

Question 3

Benchmark Premium

Answer 3

Also known as the premium for the applicable second-lowest cost Silver plan (SLCSP) for a taxpayer’s family size offered through the Marketplace.

Question 4

Bronze/Silver/Gold/Platinum plans

Answer 4

The four levels of qualified health plans offered by Health Insurance Marketplaces, based on the value of the coverage provided.

Question 5

Cafeteria Plan

Answer 5

A plan wherein an employer offers a choice of nontaxable fringe benefits from which participating employees may select. The plan may be funded with employer contributions, employee contributions (usually through salary reduction agreements) or a combination of both. It is also often called a §125 plan or a flexible spending account (FSA).

Question 6

Child and Dependent Care Credit

Answer 6

A nonrefundable tax credit of 20–35% of employment-related child and dependent care expenses for amounts of up to $6,000, available to individuals who are employed and have a qualifying child or disabled spouse or dependent. The credit is computed on Form 2441 and reported on line 49, Form 1040, line 31, Form 1040A, or line 47, Form 1040NR.

Question 7

Coverage Family

Answer 7

Includes all individuals in a tax family who are enrolled in a qualified health plan.

Question 8

Credits

Answer 8

A direct reduction of tax liability allowed for various purposes to taxpayers who meet the qualifications. Some credits are refundable; that is, the IRS will send the taxpayer a refund for any amount in excess of the tax liability. Some credits are nonrefundable; that is, they can only reduce tax liability to zero. Some credits may be carried to other tax years.

Question 9

Department of Health and Human Services (HHS and DHHS)

Answer 9

The federal agency that oversees the Centers for Medicare and Medicaid Services (CMS). CMS administers programs for protecting the health of all Americans.

Question 10

Excess Advance Premium Tax Credit

Answer 10

An additional tax liability the taxpayer owes when the Advance Premium Tax Credit is greater than the Premium Tax Credit.

Question 11

Federal Poverty Level (FPL)

Answer 11

A measure of income issued annually by the Department of Health and Human Services and used to determine eligibility for certain programs and benefits.

Question 12

Limitation on Premium Tax Credit Repayment

Answer 12

If the advanced premium tax credit is greater than the premium tax credit, the taxpayer’s additional tax liability may be limited. The limit is based on filing status and household income as a percentage of the federal poverty line.

Question 13

Marketplace/Exchange

Answer 13

A Marketplace supervised by a governmental agency or nonprofit entity that qualified individuals may use to purchase a qualified health plan.

Question 14

Net Premium Tax Credit

Answer 14

A refundable credit the taxpayer will receive when the premium tax credit (PTC) is greater than the advanced payment of the premium tax credit (APTC).

Question 15

Nonrefundable Credit

Answer 15

A credit which cannot exceed the taxpayer’s tax liability.

Question 16

Open Enrollment Period

Answer 16

The period during which the taxpayer is authorized to enroll in health insurance through the Marketplace/Exchange. Outside the Open Enrollment Period, a taxpayer can generally enroll in a health insurance plan only if they qualify for a Special Enrollment Period.

Question 17

Qualified Health Plan

Answer 17

An insurance plan that is certified by the Health Insurance Marketplace, and provides minimum essential coverage. This includes Bronze, Silver, Gold, and Platinum level plans, but not catastrophic coverage plans.

Question 18

Refundable Credit

Answer 18

A credit for which the IRS will send the taxpayer a refund for any amount in excess of the taxpayer’s tax liability.

Question 19

Saver’s Credit

Answer 19

A term often used to reference the retirement savings contributions credit, a nonrefundable credit based on up to $2,000 in contributions to employer-sponsored retirement plans and traditional and Roth IRAs. The credit is allowed in addition to any deduction available for the contributions. It is computed on Form 8880, Credit for Qualified Retirement Savings Contributions.

Question 20

Shared Responsibility Payment

Answer 20

The annual tax penalty a taxpayer must pay if they do not maintain qualifying health coverage for each month of the tax year and do not qualify for an exemption. The tax is reported on Form 1040, line 61 or Form 1040A, line 38.