IRS gives taxpayers a break on repaying extra Obamacare tax credits


The Internal Revenue Service is suspending a requirement for taxpayers who received too much on their advance payments for the Premium Tax Credit last year to repay the excess amount.

The IRS announced last week that taxpayers who received excess advance payments in 2020 on the tax credit for health care under the Affordable Care Act aren’t required to file Form 8962, Premium Tax Credit, or report an excess advance Premium Tax Credit repayment on their Form 1040 or Form 1040-SR, Schedule 2, Line 2, when they file their 2020 taxes this year.

The relief could help millions of people who receive the tax credits to help them pay for health insurance coverage under the ACA. Under the usual rules, they’re required to give back to the IRS any extra subsidies they received during the year when they file their taxes. That can be difficult given the COVID-19 pandemic and the economic fallout from it last year, when millions of people needed to use their health insurance for treatment.

Health care workers test people at a COVID-19 testing site in the parking garage for the Mahaffey Theater in St. Petersburg, Florida.

Eve Edelheit/Bloomberg

Eligible taxpayers are able to claim the Premium Tax Credit for health coverage in a qualified health plan they get through an Obamacare health insurance marketplace. Taxpayers and preparers then use Form 8962 to calculate the amount of their PTC and reconcile it with their advance payment of the PTC, also known as the APTC. That computation allows taxpayers and preparers to determine whether they must increase their tax liability by all or a portion of their excess APTC, called an excess advance Premium Tax Credit repayment, or if they can claim a net PTC.

Most taxpayers will need to consult a tax professional or use tax prep software to compute the correct amount of allowable PTC and reconcile it with the APTC they’ve received using the information from Form 1095-A, the Health Insurance Marketplace Statement.

The process is still the same for taxpayers who are claiming a net PTC for last year. They need to file Form 8962 when they file their 2020 tax return. Taxpayers who are claiming a net PTC should respond to an IRS notice asking for more information to finish processing their tax return.

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,” said the IRS. “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.”

The IRS noted that it’s taking steps to reimburse people who have already filed a Form 8962, reported their tax credits, and paid an excess advance Premium Tax Credit repayment amount with their 2020 tax return before the recent legislative changes were made. Taxpayers and preparers who are in that situation shouldn’t file an amended return just to get a refund of that amount. The IRS plans to provide more details on, but in the meantime there’s no need to file an amended tax return or contact the IRS.

The temporary change in policy applies only to the 2020 tax year. Taxpayers who received the benefit before 2020 still need to file Form 8962 to reconcile their APTC and PTC for any years prior to 2020 when they file their taxes even if they otherwise aren’t required to file a tax return for that year. Despite the slowdown and mail backlog caused by the pandemic, the IRS is continuing to process prior-year tax returns and exchange correspondence with taxpayers asking for any missing information. If the IRS sends a letter asking a taxpayer about a 2019 Form 8962, it may need more information from the taxpayer to finish processing the return. “Taxpayers should respond to the letter so that the IRS can finish processing the tax return and, if applicable, issue any refund the taxpayer may be due,” said the IRS.

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