What are the pros and cons of taking the IRS income tax credit vs taking Marketplace premium tax credit?

[crispone]

We've been on a Marketplace plan the last couple of years and have never taken the premium tax credit offered by the Marketplace.  Every year (even prior to enrolling through the Marketplace), we've received a tax refund of roughly $1200.  

We're seeing that we're eligible for a premium tax credit of over $600 / month through the Marketplace.  That comes to over $7200 over the course of the year, so on the surface it would appear that the IRS is offering to either A) Give us $1200 as a tax refund, or B) Give us more than $7200 toward our insurance premiums.  It seems like a no-brainer, which makes me wonder where the catch is.  I'm afraid that if we take the premium tax credit through the Marketplace rather than getting a refund at the end of the year, we'll wind up owing the difference between our usual refund and the premium credits, or roughly $6000.  

Is it true the the IRS is willing to "give" you more if you take it through premium credits?  How can I tell if taking the premium credits won't come back to bite me at the end of the year?

[Critter]

Are you saying all you get for the PTC on the return is $1200?  Or is just your regular refund amount?

[crispone]

$1200 is just our usual refund, give or take $100 from year to year.  That's about how much it was in years prior to the Marketplace and how much it's been since we started using it.  I should point out that when we file our taxes, we do report that we're insured through the Marketplace and how much we pay in premiums, so I'm assuming our refund in recent years has been calculated with that in mind.

I'm under the impression that the tax credits are also offered at the time of filing if you didn't take them through premium tax credits.  It just seems that we stand to save a whole lot more if we take the credits through PTCs rather than at the time of filing, so I must not be understanding something.

[ghost]

When filing your taxes, you should have entered Form 1095-A which you received from your marketplace insurer. This info is used to add Form 8962 to your tax submission. The form reports the amount of PTC you are allowed. If you took zero throughout the year, i.e., paid the entire insurance premium out of pocket, then the form will show the full credit amount due to you as a refund above any refund based on income alone. So, you should have a $1200 or so income tax refund PLUS the $7200 PTC credit.

[ghost]

@crispone also, if you can afford to pay the premium all year out of pocket, then you have no worries about payback should your income rise and result in losing some or all of your PTC. You just get the PTC (as a refund) after you file your taxes.

[TaxGuyBill]

So if you did NOT enter your 1095-A in prior years and you think you would have qualified for the Premium Tax Credit, you may want to amend.
https://ttlc.intuit.com/questions/1894381-how-to-amend-change-or-correct-a-return-you-already-filed

As for your question for the Pros and Cons:

Neutral:   If the number of people on your tax return is the same as what you told the Marketplace, and your actual income is similar to what you told the Marketplace, the "net result" would be the same.  It would not matter if you received Advance credits to reduce your monthly insurance cost, or if you take it all on the tax return.  The end result would be the same.

Pros for taking the Advance credit to reduce your monthly payments:   If your actual income is significantly different than what you told the Marketplace, it often better to have taken the Advance credit.  That is for two reasons:  (a) If your income falls too low to qualify for the credit, taking Advance credit will still qualify you for the credit, and (b) If your income is higher, your repayment is sometimes limited.

Cons for taking the Advance credit to reduce your monthly payments:  If your actual income is significantly higher than what you told the Marketplace (or you have fewer people on your tax return), you would need to repay part or all of the Advance credit.  Although the "net result" would be the same either way, you would need to be prepared to make the repayment when you file your tax return.