Suspension of tax liability from Marketplace health insurance credits
If you received too much of a credit from the government for your Marketplace health insurance, you are not required to pay back the excess credit for tax year 2020.
The IRS announced that taxpayers increase of their tax liability from their excess advance premium tax credit (APTC) payments for 2020 has been suspended. If you received too much of a credit you are not required to file Form 8962 Premium Tax Credit.
The excess APTC is the amount by which your advance payments of the APTC exceed your Premium Tax Credit (PTC).
The latest IRS announcement regarding Marketplace health insurance credits includes terms, acronyms and principles which can make it challenging to understand. Consequently, I am providing the following example to make it easier for everyone to understand the concept.
John signs up for health insurance at the Marketplace. John estimates his income for tax year 2020 will be $25,000. Since his income is relatively low, his health insurance is subsidized by the government based on the amount of his projected income. When John files his income tax return if his income for 2020 was more than $25,000, he would have received too much of a subsidy and would have to pay back the excess amount of the advance subsidy. The excess subsidy is called an excess premium tax credit. Normally John would have to pay back the excess when he filed his tax return. As a result of the IRS announcement, he would not have to pay back the excess credit or file Form 8962 with his tax return for 2020.
If John’s income was less than $25,000, he may be qualified to receive additional credit when he files his return. The credit he would be eligible for is called a net premium tax credit. John would need to file Form 8962 to receive his credit.
You can check with their tax professional or use tax software to figure the amount of allowable PTC and reconcile it with APTC received using the information from Form 1095-A, Health Insurance Marketplace Statement.
Taxpayers who have already filed their 2020 tax return and who have excess APTC for 2020 do not need to file an amended tax return or contact the IRS. The IRS will reduce the excess APTC repayment amount to zero with no further action needed by the taxpayer. The IRS will reimburse people who have already repaid any excess advance Premium Tax Credit on their 2020 tax return. Taxpayers who received a letter about a missing Form 8962 should disregard the letter if they have excess APTC for 2020. The IRS will process tax returns without Form 8962 for tax year 2020 by reducing the excess advance premium tax credit repayment amount to zero.
This change applies only to reconciling tax year 2020 APTC.
David Zubler is a tax accountant and Enrolled Agent representing clients before the IRS with over 25 years of tax experience. He is the author of four tax books and is the founder and president of Your Tax Care. The company provides business and tax education to the public at its website, YourTaxCare.com. David can also be contacted by email at firstname.lastname@example.org