Certain marital, custodial and family groupings can create situations where the PTC must be divided between multiple taxpayers, and thus requiring those taxpayers to allocate the APTC, SLCSP, and actual premiums reported by the Marketplace on Form 1095-A. This generally occurs when a taxpayer’s family Marketplace health plan covers at least one individual that should not have been included in the taxpayer’s tax family or the family has split up.

Situations requiring allocations include children leaving the nest, including someone on the Marketplace policy that is not a dependent, separated taxpayers not filing jointly, and divorced taxpayers.

Example 1 – Divorced Couple - Al and Janice were divorced in June and will not be filing jointly for the year. Both Al and Janice and their dependent son, Dan, are insured on their family policy with the Marketplace. They notified the Marketplace of their divorce and Marketplace provided separate policies for them beginning in July. The Marketplace will issue a 1095-A for the first six months that will have to be allocated, and Janice and Al will each receive a separate 1095-A for the last half of the year. They will combine their separately reported 1095-A information with the allocated amounts when reconciling the PTC on their own returns. When making an allocation and there are other family members on their policy, they must first do a per capita allocation for the family members based upon who is claiming the dependency for the family member. The remainder can be allocated in any way they can agree upon or if they cannot agree, 50-50.

Continuing with our example, we must now transfer the allocated 1095-A data to Part II of the 8962. We will use Janice’s reporting for this example. Since they were divorced mid-year and reported that change in status to the Marketplace, they will receive a joint 1095-A for the part of the year they were married and individual 1095-As for the period of time after the divorce. Thus, they must allocate the APTC, SLCSP premiums, and actual premiums paid and reported on the joint 1095-A. They agreed to allocate 50% to each.  Therefore, Janice will use 50% of APTC, SLCSP premiums, and actual premiums reported on the joint 1095-A and 100% of the ones on her 1095-A for the last half of the year.  See illustration below.    

The Form 8962 instructions include a large list of possible scenarios requiring Form 1095-A allocations. However, one need only remember the following rule to determine when allocations are required: 

Example 2 – Divorced Couple - Using Al and Janice from example 1, except that they failed to notify the Marketplace of their divorce and as a result the coverage continued as family coverage for the entire year including the last half of the year when they were divorced.  When this occurs, there must be two allocations, one for the first half of the year as done in example 1 and another for the last half of the year using the rules for “policy shared with an individual for whom another person claims a personal exemption”.  Under those rules Al and Janice can allocate the 1095-A amounts for the last part of the year in any manner they can agree upon provided the APTC, SLCSP premiums, and actual premiums reported by the Marketplace are allocated proportionately.  If they cannot agree, the allocation percentage is the number of exemptions claimed by the taxpayer divided by the total number enrolled in the policy.  Thus, Al and Janice will do two separate allocations using different rules for the periods of the year they were married and the part they were divorced.

Example 3 - Taxpayers married at year end but filing separate returns - If the taxpayers are married at the end of the year but are filing separate returns, either or both may meet the qualifications to file as single* or head of household instead of married filing separately. If filing as single* or head of household, that taxpayer may qualify to take the PTC since they have separate tax families and are not filing as married separate. The total enrollment premiums and APTC (but not the applicable SLCSP premiums) are allocated equally between the spouses for the months when one qualified health plan covers at least one individual for each tax family, which may be any of the following.

If none of the above applies, all enrollment premiums and APTC are allocated to the spouse whose tax family had one or more of the covered individuals.

If one or both spouses do not qualify to file as single* or head of household then he or she must file as married filing separately and is not eligible to take the PTC.  APTC allocated to this spouse must be repaid subject to limitations.

 *May apply only if filing Form 1040NR – see instructions to Form 1040NR for requirements

If none of the above applies, all enrollment premiums and APTC are allocated to the spouse whose tax family had one or more of the covered individuals. This will occur when only individuals in the taxpayer’s family are included in the Marketplace policy and therefore no allocation is required.  Victims of domestic abuse must check the box at the top right of page 1 of the 8962.  Caution: The taxpayer claiming to be the victim of domestic abuse or abandonment will generally have a change in family size and will have to use an applicable SLCSP premium different from the one reported on the 1095-A. See Pub 974 for information on determining the correct applicable SLCSP premium.

Example 5 – Policy shared with an individual whom another taxpayer claims - If the taxpayer or another person in the taxpayer’s tax family was enrolled in a Marketplace qualified health plan with an individual (for example, the taxpayer’s child) whom another taxpayer claims as a dependent (for example, a former spouse), an allocation of the APTC, insurance premiums and applicable SLCSP premium is required on Form 8962, Part IV. The taxpayer claiming the dependent may be able to take the PTC for the child’s coverage. The taxpayer and the person claiming the dependent may agree on any allocation percentage between zero and one hundred percent. If they cannot agree on an allocation percentage, the allocation percentage is equal to the number of individuals enrolled by the taxpayer whom the other person claims for the tax year divided by the total number of individuals enrolled in the same policy as the individual. The allocation percentage is the percentage of the total that applies to the amounts the claiming-person must use to compute the PTC and reconcile it with the APTC. The taxpayer uses the remaining amounts to compute PTC and reconcile the APTC. 

Example 6 - A taxpayer is credited with APTC for Marketplace qualified coverage for an individual whom no taxpayer claims as part of their tax family - The taxpayer is responsible for reporting and reconciling the APTC.

Example 7 – Policy shared with two or more tax families - If the taxpayer enrolled in a single qualified health plan with one or more other tax families and APTC was credited to the policy, the enrollment premiums may have to be allocated among the families. Each applicable taxpayer covered by the plan can claim the PTC, if otherwise allowable. Both taxpayers must each use the premium for the applicable SLCSP coverage for their family. Each must compute their respective contribution amounts using the Federal poverty line percentage for the household income and family size reported on their individual Form(s) 8962.  The enrollment premiums are allocated in proportion to the premiums for the applicable SLCSP for each taxpayer’s coverage family. • If no APTC is paid - for this qualified health plan, the Marketplace may furnish only one Form 1095-A. In this situation, the taxpayer receiving the Form 1095-A should provide a copy to the other taxpayers. The taxpayers must complete only column e on the appropriate line in Part IV to allocate the enrollment premiums to each family.• If APTC was paid - for each tax family in a shared policy and no family had any unreported changes in their respective coverage family during the tax year, and each family received their own Form 1095-A, the taxpayer need not complete Part IV of this form. The Marketplace will allocate the enrollment premiums and APTC on Form 1095-A.

If more than four allocations are required for the taxpayer, check the “no” box at line 34 and attach a supplemental statement. Then follow the instructions for the yes box, but include the amounts from the supplemental statement.

In the year of marriage, and in the months before marriage, one or both of the newlyweds may have been covered by a Marketplace policy. They may have had their own individual Marketplace policies or they may have been on their family’s Marketplace policy. Whatever their pre-marriage circumstances, they will have to account for any APTC based upon their married status at the end of the year, which could result in them having excess APTC when they file since their family size is now at least two and their household income includes the incomes of both spouses. To compensate for that, an elective alternative calculation for the year of marriage is provided. Worksheets and detailed instructions are included in Pub. 974 under “Alternative Calculation for Year of Marriage.”

Generally, the alternative calculation allows the couple to split the household income in half and use the appropriate family size to compute their individual PTCs. Family size would normally be one unless one of the couple has other dependents. However, when using this method, if the alternative method computation results in additional PTC because of the marriage, the PTC is capped at the amount computed using the regular method. Thus, the alternative method can only reduce the amount owed, but cannot increase the refund.

CAUTION – The alternative method will only work if 50% of their combined household income is below the 400% poverty level. If over 400%, all the APTC must be repaid.