IRS Suspends Repayment of Excess Advance Payments of the 2020 Premium Tax Credit

(Parker Tax Publishing April 2021)

The IRS has suspended the requirement that taxpayers increase their tax liability by all or a portion of their excess advance payments of the premium assistance tax credit under Code Sec. 36B for tax year 2020. A taxpayer's excess premium assistance tax credit is the amount by which the taxpayer's advance payments of such credit exceed his or her premium assistance tax credit. IR-2021-84.

Background

Code Sec. 36B provides a refundable premium tax credit (PTC) to help individuals and families afford health insurance purchased through Affordable Insurance Exchanges (Exchanges, also called Marketplaces). Generally, to be eligible for this subsidy, Code Sec. 36B(a) provides that an individual must be an applicable taxpayer. Code Sec. 36B(c)(1) defines an applicable taxpayer to mean a taxpayer (1) with household income for the tax year that equals or exceeds 100 percent but does not exceed 400 percent of the federal poverty line for the taxpayer's family size, (2) who may not be claimed as a dependent by another taxpayer, and (3) who files a joint return if married. Special rules apply for certain individuals lawfully present in the United States if certain conditions are met.

Taxpayers receive advance payments of the PTC (advance PTC) and, if the taxpayer's household income exceeds the applicable amounts, the excess advance PTC received by the taxpayer generally must be repaid. Taxpayers use Form 8962, Premium Tax Credit to calculate the amount of their PTC and reconcile it with their advance PTC. This computation lets taxpayers know whether they must increase their tax liability by all or a portion of their excess advance PTC or may claim a net PTC.

Section 9662 of the American Rescue Plan Act of 2021 (ARPA) (Pub. L. 117-2) amended Code Sec. 36B(f)(2)(B) to temporarily suspend the requirement that taxpayers increase their tax liability by all or a portion of their excess advance PTC for tax year 2020.

Observation: The ARPA also increased and expanded eligibility for PTCs for 2021 and 2022. In the case of a tax year beginning in 2021 or 2022, there is no limit on an applicable taxpayer's household income. Thus, taxpayers with household income that exceeds 400 percent of the federal poverty line for the taxpayer's family size are eligible for the PTC.

Repayment Requirement for 2020 Suspended

On April 9, the IRS announced that taxpayers subject to repayment of their 2020 PTC are not required to file Form 8962, Premium Tax Credit, or report an excess advance PTC repayment on their 2020 Form 1040 or Form 1040-SR, Schedule 2, Line 2, when they file.

The process remains unchanged for taxpayers claiming a net PTC for 2020. They must file Form 8962 when they file their 2020 tax return.

Taxpayers who have already filed their 2020 tax return and who have excess advance PTC for 2020 do not need to file an amended tax return or contact the IRS. The IRS will reduce the excess advance PTC repayment amount to zero with no further action needed by the taxpayer. The IRS will reimburse people who have already repaid any excess advance PTC on their 2020 tax return. According to the IRS, taxpayers who received a letter about a missing Form 8962 should disregard the letter if they have excess advance PTC 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.

For a discussion of the premium tax credit and changes made for 2020 and 2021 by the American Rescue Plan Act of 2021, see Parker Tax ¶102,620 and ¶102,635.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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