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You are no longer required to repay excess advance 2020 premium tax credit payments

Posted on May 17, 2021

If you used the premium tax credit in 2020 to help pay for health insurance coverage bought from the Health Insurance Marketplace, this new 2020 IRS tax ruling will give you reason to smile.

Advance payments of the premium tax credit — or APTC – lower what taxpayers must pay out-of-pocket for their monthly premiums. The American Rescue Plan Act of 2021 suspends the requirement that taxpayers repay their excess advance payments of the premium tax credit for tax year 2020.

Eligible taxpayers can now choose to:

  • have all, some, or none of the estimated credit (paid in advance) disbursed directly to their insurance company on their behalf, or
  • choose not to receive APTC and pay the full amount of your monthly premium, and claim all the benefit of the PTC that the IRS allows when you file your tax return.

Either way, this will increase your refund or lower the amount of tax you owe. You can claim this tax credit by using Form 8962, Premium Tax Credit to figure the amount of their PTC and reconcile it with your APTC. You TEIPEN CPA will be happy to help with this.

The details:

Excess APTC is the amount by which your advance payments of the premium tax credit exceed your premium tax credit. If you used APTC

to help make your monthly payments for your Marketplace plan, you will need to compare two things to figure out what to do:

  1. Determine the amount of premium tax credit paid in 2020 to the Marketplace on your behalf in advance, and
  2. Calculate the actual premium tax credit you qualify for, based on your final income for 2020.

The IRS needs the information on the form to process your tax return. for taxpayers. If the your APTC was less than your allowable PTC, you can claim the difference on your 2020 tax return by including Form 8962 with your return. If it was more than your allowable PTC, you are not required to file Form 8962, Premium Tax Credit, or report an excess advance premium tax credit repayment when you file their 2020 Form 1040 or Form 1040-SR.

If a taxpayer claims a net PTC and they receive a letter asking for more information, they should respond to the notice so that the IRS can finish processing their 2020 tax return and, if applicable, issue any refund due.

Confused?

This change only applies to 2020 excess APTC repayment. Those who received the benefit of APTC before 2020 must file Form 8962 to reconcile their APTC and PTC when they file their federal income tax return. If you filed your 2020 tax return before the legislation and reported excess APTC, and received a letter about a missing Form 8962, you don’t need to respond to the letter, or contact the IRS, or file an amended tax return. The IRS will process 2020 tax returns without the Form 8962 by reducing the excess advance premium tax credit repayment amount to zero without further action by the taxpayer.

If you are unsure how to respond or have already filed your 2020 taxes without taking advantage of this new option, please don’t hesitate to give our CPAs a call. We can help you figure out your unique situation with confidence that you are abiding by all IRS requirements.