February 2, 2023 1:53 am

Repayment of Advance Premium Tax Credit Required

The premium tax credit is payable on an advanced basis to defray the cost of health coverage purchased through a government exchange. However, if more of the credit is received than the amount to which a taxpayer is entitled, the excess must be repaid (there was an exception only for 2020). That’s what one taxpayer found out. She was enrolled in a health plan through the Marketplace for the first 11 months of 2016 that required monthly premiums of $708. The Marketplace determined she was eligible for the advance premium tax credit of $655 payable to the insurance company, which meant her obligation for premiums was $53 per month ($708 – $655). Unfortunately, she failed to make all the payments and coverage was terminated for nonpayment of premiums. Form 1095-A, Health Insurance Marketplace Statement, reflected the coverage information and directed her to file Form 8962, Premium Tax Credit, to reconcile the advance payment with what she was entitled. She didn’t do this.

When the IRS reviewed her return, it was seen that her household income was 598% of the federal poverty line (FPL). For the year in question—2016—no premium tax credit was allowed if household income exceeded 400% of the FPL. The Tax Court held that because her income made her ineligible for any premium tax credit, the $7,205 ($655 x 11) advance is a tax liability (Marie L. Henry, TC Memo 2023-2). She argued that she canceled the coverage in February so that no payment should have been made on her behalf and she should be not be responsible for the fact that payments continued for 11 months. The court didn’t buy her argument. While she seemed sincere, there was no proof of cancellation.

Note: For 2021 and 2022, the IRS suspended the 400% FPL limit on eligibility for the premium tax credit. The 400% FPL limit applies for 2023, and Congress extended the suspension to 2023 through 2025 in the Inflation Reduction Act of 2022. The federal poverty guidelines published in January of 2022 apply for premium tax credit eligibility for 2023.

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Tax Glossary

Capital expenses

Costs that are not currently deductible and that are added to the basis of property. A capital expense generally increases the value of property. When added to depreciable property, the cost is deductible over the life of the asset.

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