I am in a domestic partnership but have not yet gotten married. My partner and I are going to sign up for health care coverage in May because we will lose coverage through an employer. My question is if we get married this year, will we then have to take our combined income to sign up for health care or can we still sign up with our individual incomes? According to the information I got, we can both get a tax credit if we sign up individually but will not get one if we base it on combined income. Will we get hit with owing taxes at the end of the year should we get married?
Tax credits are based on household income, when you get married mid-year you'll count income before marriage and after marriage differently on the 8962 form Table 4. Alternative Calculation for Year of Marriage Eligibility. This is on page 8 of the 8962 instructions.
This part of the form can be a little daunting, so we do suggest getting professional tax assistance at the end of the year. But here is the gist, in essence you claim your tax credit based on 1/2 combined income up until you get married, then you'd switch to a family plan when you get married, and then claim the tax credit from the month you got married forward based on that household income. You use the alternative calculation methods to calculate income monthly (instead of annually) due to being married. The same thing works for divorce.
TIP: A reader pointed out... Pub 974 only allows an alternate calculation based on half your combined income for the before marriage months. Half your combined income will still be much higher then your real income for those months. It is a very small relief if any. If you get married and you have Obamacare but your spouse does not and makes quite a bit more than you, plan on paying almost all of your credit back.
This may involve repaying tax credits (that information can be found in the instructions as well), but more likely if projections were made correctly and the Marketplace was notified at the correct times repayments will be non-existent or minimal.
To get tax credits you need to share a coverage family and tax family. That means you need to be on the same plan, and if you are married in most instances you'll both need to file a joint return. For marriage that means you must switch to a family plan and file a joint return to claim tax credits. (This paragraph has been debated, see comments below; I have to re-check;8962 instructions and do a "command find" for "coverage family". )
Advice: Do not file a Married Filing Separately tax return (unless you meet the criteria in section 1.36B-2T(b)(2) of the Temporary Income Tax Regulations, which allows certain victims of domestic abuse and spousal abandonment to claim the premium tax credit using the Married Filing Separately filing status (see questions 12 and 13). - See IRS question 13 for more information.
See IRS Pub 947, for more information alternative calculations. This is suggested in the 8962 instructions, but our readers have reported these details being helpful in completing alternative calculations for marriage.