The IRS announced on Friday that taxpayers who may have had excess Sec. 36B premium tax credits to report for the 2020 tax year are not required to file Form 8962, Premium Tax Credit, or report an excess advance premium tax credit (APTC) repayment on their 2020 Form 1040, U.S. Individual Income Tax Return, or Form 1040-SR, U.S. Tax Return for Seniors, Schedule 2, line 2, when they file (IR-2021-84). The American Rescue Plan Act of 2021, P.L. 117-2, suspended the requirement that taxpayers increase their tax liability by all or a portion of their excess advance payments of the APTC for tax year 2020.
According to the IRS, a taxpayer’s excess APTC is the amount by which the taxpayer’s advance payments of the premium tax credit exceed his or her premium tax credit (PTC).
Taxpayers who are eligible claim a PTC for health insurance coverage in a qualified health plan purchased through a health insurance marketplace. Taxpayers use Form 8962 to figure the amount of their PTC and reconcile it with their APTC. This computation lets taxpayers know whether they must increase their tax liability by all or a portion of their excess APTC or may claim a net PTC.
Taxpayers should check with their tax preparer or use tax software to figure the amount of allowable PTC and reconcile it with the APTC received, using the information from Form 1095-A, Health Insurance Marketplace Statement.
The process remains unchanged for taxpayers claiming a net PTC for 2020, meaning they did not receive an excess PTC payment amount for 2020. They must file Form 8962 when they file their 2020 tax return. If taxpayers claiming a net PTC receive an IRS notice asking for more information to finish processing their tax return, they should respond.
As with the automatic refunds on unemployment benefits, the IRS is helping taxpayers who have already filed their 2020 tax return before the law was changed and who have an excess APTC for 2020, so they do not need to file an amended tax return or contact the IRS. The IRS will reduce the excess APTC repayment amount to zero automatically.
The IRS announcement said it will reimburse people who have already repaid any excess APTC on their 2020 tax return and that taxpayers who received a letter about a missing Form 8962 should disregard the letter if they have excess APTC for 2020. The IRS will process tax returns without Form 8962 for tax year 2020 by reducing the excess APTC repayment amount to zero.
The rule exempting excess APTC applies only to 2020, so taxpayers who received the benefit of an APTC before 2020 are reminded that they must file Form 8962 to reconcile their APTC and PTC for the pre-2020 year when they file their income tax return even if they were not required to file a tax return for that year.
The IRS noted that it is still processing prior-year tax returns and asking for missing information. If the IRS sends a letter about a 2019 Form 8962, the IRS says the taxpayer should respond so that the Service can finish processing the tax return and issue any pending refund.
— Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a JofA senior editor.