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Repayment of Advance Premium Tax Credit

Last year, two clients both applied for and received healthcare through the ACA. One finally sold an old boat (investment property) which put his income well over what he estimated for the year and had to pay back almost $9,000 in APTC. The second client's wife had her job terminated and received severance pay while her unemployed husband landed a job with a W-2. They too, were required to pay back the excess APTC of almost $9,000.

I know they should have immediately reported the changes to their income, but they went through a 'navigator' and claimed they didn't know they needed to do that.

Question is where do they report what are essentially health insurance premiums paid for a prior year as they pay back that excess APTC? I'm thinking the Sch A, if they have enough items to itemize, but am unsure of that.

One of the major traps with ACA is trying to project next years income, especially if one is self-employed.

Thanks ~

Reply to
Wilson
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You have come to the exception to the rule. Under ACA, when you receive additional premium tax credits you treat them as a reduction to your health insurance premiums for that tax year. When you have to pay back advanced premium tax credits, you treat it as additional health insurance premiums for that tax year. So... the amount paid back is additional health insurance expense for 2014. It does not matter that they made the payment in 2015.

In your situation, you would amend 2014 (if necessary) to see if they would get a tax benefit from itemizing deductions with the additional medical expense.

Reply to
Alan

Thanks Alan,

That is remarkable. Are you aware of any provisions for those who were self-employed? Would they have to amend their previous return and could they claim the self-employed health insurance deduction for the repayment on ln

29 of their 1040 or are they forced into the Sch A, too?

Taking the same scenario, since you know in the year filed that repayment is necessary, would you just move that amount to the Sch A or ln 29 of the

1040. I kinda doubt it since you haven't made any repayments yet.

Then there is the problem that the taxpayer could take years to payback $10,000 or so. Seems the statute for amending returns could run out.

I would suggest stringing out the repayments for as long as possible if one were put into that last scenario.

So ready for single-payer health care - Medicare for all.

Reply to
Wilson

A couple of points: You make the adjustment to deductible medical expense on the same tax return that makes the determination that you either are entitled to more PTC or you have to pay back PTC.

As to those who are self-employed, the adjustment is made to AGI (not Schedule A). However, it is complicated because you have circular reasoning. So... you need to follow the method in Revenue Procedure

2014-41.
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Reply to
Alan

I would like to add, that this method of using the tax year and not the year the net PTC is received or paid back was presented in two different tax seminars that I attended on the ACA and I am almost sure that I saw it mentioned on an IRS webpage. That being said, I have been unable to find a citation that supports this.

Anybody out there have a citation that supports using the tax year of the adjustment rather than the year payment is made or received relative to the PTC?

Reply to
Alan

The IRS reference is in two examples on page 13 of the 2015 IRS Pub 502.

That being said, I have been unable to

Reply to
Alan

Thanks again for your time. I will look into Pub 502 too.

Reply to
Wilson

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