Update on the 2020 Premium Tax Credit

IRS suspends the requirement to repay excess advance payments of the 2020 Premium Tax Credit.

What Are APTC and PTC

The premium tax credit helps pay for health insurance coverage bought from the Health Insurance Marketplace. Those eligible can choose to have all, some, or none of the estimated credit paid in advance directly to their insurance company on their behalf. These payments – which are called advance payments of the premium tax credit, advance credit payments, or APTC – lower what taxpayers pay out-of-pocket for their monthly premiums.

You may also choose not to get APTC, pay the full amount of your monthly premium, and claim all the benefits of the PTC that you are allowed when you file your tax return. This will increase your refund or lower the amount of tax you owe. Use Form 8962, Premium Tax Credit, to figure the amount of your PTC and reconcile it with your APTC.

The American Rescue Plan Act of 2021 suspends the requirement to repay your excess advance payments of the premium tax credit for tax year 2020. Excess APTC is the amount by which your advance payments of the premium tax credit exceed your premium tax credit.

What to Do If You Used APTC

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 you need to do:

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

The best way to do this is to complete Form 8962, Premium Tax Credit, using the information from Form 1095-A, Health Insurance Marketplace Statement you received from your plan, as part of your tax preparation.

If APTC is Less Than Allowable PTC

If your APTC was less than your allowable PTC, you can claim the difference on your 2020 tax return as a net PTC by including Form 8962 with your tax return. The IRS needs the information on the form to process the tax return. If you claim a net PTC and you receive a letter asking for more information, you should respond to the notice immediately so the IRS can finish processing your 2020 tax return and, if applicable, issue any refund due.

If Excess APTC for 2020 is More Than Allowable PTC

If you have excess APTC for 2020 that is 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 your 2020 Form 1040 or Form 1040-SR.

I Filed Before the Legislation

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. You also don’t need to file an amended tax return. The IRS will process 2020 tax returns without Form 8962 by reducing the excess advance premium tax credit repayment amount to zero without further action by you.

A Final Note

The IRS is taking steps to reimburse those who paid the excess advance Premium Tax Credit repayment amount with their 2020 tax return filed before the legislative changes were made. Taxpayers in this situation should not contact the IRS or file an amended return solely to get a refund of this amount. The IRS will provide more details on IRS.gov.

This change only applies to 2020 excess APTC repayment. If you received the benefit of APTC before 2020, you must file Form 8962 to reconcile your APTC and PTC when you file your federal income tax return. This is true even if you aren’t otherwise required to file a tax return for that year. For example, if the taxpayer receives a letter about a 2019 Form 8962, the agency needs more information to finish processing their tax return, and taxpayers should respond to the letter.

Contact your local tax professional if you need help understanding the new legislation as it applies to your 2020 Premium Tax Credit.

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