April 28, 2023 2:41 am

Taxpayer Must Repay Premium Tax Credit Advance

Individuals can obtain help paying health coverage purchased through a government exchange via the premium tax credit. When an individual applies for coverage before the start of the year, it’s not certain what income will be by the end of the coverage year, since qualification depends upon household income measured at the end of the year against a percentage of the federal poverty line. That’s why Form 8962, Premium Tax Credit, must be completed and attached to the return to reconcile income with the credit received on an advanced basis. For some taxpayers, some or all of the advanced credit must be repaid. For others, an additional credit amount may be owed to them as a tax refund.

Following all of the requirements under Form 8962 can be challenging, especially for a lower-income taxpayer, but is essential. In one case, an individual enrolled for health coverage in the Oklahoma Marketplace in 2018 for herself and two dependents, for a monthly premium of $1,145.75, which was fully subsidized by the advance premium tax credit (premiums were paid directly to the insurance company on the taxpayer’s behalf). When she filed her income tax return for the year, she showed adjusted gross income of $113,721, which was well above 400% of the federal poverty line for her family size for 2018 ($81,860), which governed premium tax credit eligibility that year. She did not attach Form 8962 to her return, but did send it separately to the IRS. When the IRS sought to collect an underpayment, she didn’t dispute that she was subject to the repayment requirement, but wanted relief based on financial hardship. She explained that someone in the Oklahoma Martketplace had led her to believe she was eligible even though she was not. However, the Tax Court has no authority to make an equitable determination, it had no choice but to order the taxpayer to pay back the advance premium tax credit (Chaluandra Edjewel Sneed, TC Summary Opinion 2023-11).

Tax Glossary

Roth IRA

A nondeductible contributory IRA that allows for tax-free accumulation of income. Qualifying distributions are completely tax free.

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