Welcome back to the Hedgi AI blog! Today, we’re talking about how to allocate your Covered CA Health Insurance, specifically when dealing with Form 1095-A. Knowing how to properly allocate this form can help you ensure accurate tax filings and potentially maximize your tax credits.
What is Form 1095-A?
Form 1095-A is a health insurance Marketplace statement sent to individuals who had Marketplace coverage. It includes information about your health insurance, such as coverage dates, monthly premiums, and any Advance Premium Tax Credit (APTC) payments.
Why is Allocation Important?
Allocation comes into play in specific situations, such as if you are divorced, legally separated, or married but filing separately. Properly allocating the amounts on Form 1095-A is crucial for determining your Premium Tax Credit (PTC) and reconciling it with your APTC.
Specific Allocation Situations
Here are some common scenarios where you might need to allocate your policy amounts:
- Divorced or Legally Separated
If you were married to your former spouse at some point during the year but divorced or legally separated by the end, you must allocate the policy amounts between you and your ex-spouse on your separate returns.
Example 1: Keith and Stephanie divorced in July. They agree to allocate 33% of premiums to Stephanie and 67% to Keith. Keith claims two children, and Stephanie claims one child. Each should enter the percentages on their Form 8962, Part IV.
- Married but Filing Separately
If you’re married at the end of the year and filing separate returns, you must allocate 50% of the policy amounts to each spouse if you do not qualify for any exceptions (such as domestic abuse or spousal abandonment).
Example 2: John and Carol are married but filing separately. Carol files as Head of Household, and John files as Married Filing Separately. They each take into account 50% of the premiums and APTC on their Forms 8962.
- No Advance Premium Tax Credit (APTC)
When no APTC is paid for a policy, the enrollment premiums are allocated based on the Second Lowest Cost Silver Plan (SLCSP) premium applicable to each family.
Example 3: Gary and his son Jim share a plan. They need to determine the correct SLCSP premium for each of their coverage families and then allocate the total enrollment premium proportionally.
- Shared Policy Between Two Tax Families
If a policy is shared between two tax families, you must allocate policy amounts proportionally.
Example 4: Joe and Alice share a plan for their children. They agree to allocate 20% of the policy amounts to Alice and 80% to Joe.
Steps to Allocate Policy Amounts
Identify Your Situation: Determine which specific situation applies to you.
Use Form 8962: Enter the Marketplace-assigned policy number and other required details in Part IV of Form 8962.
Agree on Allocation Percentages: If applicable, agree on the allocation percentages with the other taxpayer involved.
Fill in the Allocation Details: Enter the appropriate percentage in columns (e), (f), and (g) on Form 8962, Part IV.
Tips for Accurate Allocation
Round to Whole Dollars: When entering amounts from Form 1095-A, round to the nearest whole dollar.
Double-Check Your Math: Ensure all calculations, especially the percentages, are accurate.
Follow IRS Guidelines: Refer to the IRS instructions for Form 8962 and make sure you comply with all requirements.
Stay tuned for more helpful tips and guidance in our upcoming posts.