ACA Tax Credit Forgiveness
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WaynePersutte
Level 2

ACA Tax Credit Forgiveness

I have already filed my 2020 taxes. I have not received my refund yet. I took advantage of the ACA Marketplace subsidies and I underestimated my income - so, I had to pay back the overage credits. According to the newly passed American Rescue Act, I no longer own this payback. Will I need to refile or amend my completed return? Will Turbotax help with this?

11 Replies
BillM223
Employee Tax Expert

ACA Tax Credit Forgiveness

The changes in the American Rescue Plan for the premium tax credit apply to tax years 2021 and 2022, not to tax year 2020. See Premium Tax Credit in the bill's text.

 

So you do not need to amend your 2020 tax return, but watch for changes in your 2021 tax return, that you will file in early 2022.

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WaynePersutte
Level 2

ACA Tax Credit Forgiveness

Bill,

Several recent sources on the Internet state: "The American Rescue Plan makes significant changes to bolster the ACA and improve marketplace access and affordability by. . . Preventing taxpayers who misestimated their income in 2020 from having to repay excess premium tax credits at tax time." https://www.healthaffairs.org/do/10.1377/hblog[phone number removed]37/full/

 

Another source stated: "In tax year 2020, individuals receiving tax credits will not be required to reconcile premium tax credits if their annual income increases during the year."  https://www.jdsupra.com/legalnews/congress-passes-american-rescue-plan-9599956/

 

If I understand you correctly, your view is that these recent sources are wrong? 

 

WaynePersutte
Level 2

ACA Tax Credit Forgiveness

In the linked document linked, it states, "Waives the requirement for taxpayers to pay back excess advance premium tax credits to the IRS for the 2020 tax year. ACA marketplace enrollees receive APTCs, which are based on their annual income and lower the amount they pay monthly throughout the plan year. provided."

 

I believe this speaks to the issue.

silvia5863
New Member

ACA Tax Credit Forgiveness

I just read THE AMERICAN RESCUE PLAN ACT 2021 - FINAL TEXT,  in the PREMIUM TAX CREDIT PART says clearly that waives to pay back  excess advance premium for 2020.  You are a tax expert and you answered Wayne Persutte the opposite. Can you explain why?? or send a link where state what you argue.

 

Here is what the PLAN ACT says:

Waives the requirement for taxpayers to pay back excess advance premium tax credits to the IRS for the 2020 tax year. ACA marketplace enrollees receive APTCs, which are based on their annual income and lower the amount they pay monthly throughout the plan year."

WaynePersutte
Level 2

ACA Tax Credit Forgiveness

I believe we are saying the same thing (in contradiction to what Bill M said). I would like to know why some believe that  (as Bill stated), "The changes in the American Rescue Plan for the premium tax credit apply to tax years 2021 and 2022, not to tax year 2020." I do not read that in the ARA Plan Final Text.

 

Thus, if I have paid back the credits (as I did when I filed my tax return), I should get a credit for the overpayment. My question was - do I need to file an amended return to recover my overpayment.

BillM223
Employee Tax Expert

ACA Tax Credit Forgiveness

OK, you guys are all correct. What I missed in the hundreds of pages of the American Rescue Plan was that this particular section applied to 2020, not 2021. Actually, the other sections about the Premium Tax Credit in the plan apply to 2021, but I will admit that this one section didn't.

 

To address your other questions:

 

TurboTax is waiting for guidance from the IRS on how they want taxpayers and tax preparation companies to handle the repayment of the Premium Tax Credit. 

 

Just because the law was passed doesn't meant that TurboTax and other vendors have sufficient information on how to code this. The reason there needs to be guidance is because the law does not - indeed, cannot - anticipate all contingencies (like the one below), and Congress counts on the IRS to fill in all the gaps.

 

So far, we are given to understand by the IRS that taxpayers should not amend their returns yet, because the IRS is considering automatically refunding these amounts (in a way similar to how they say they will refund the taxes on the first $10,200 of unemployment).

 

However, because any self-employed taxpayers who have Marketplace insurance can deduct excess Premium Tax Credit (PTC) as part of the Self-employed health insurance deduction on line 16 of Schedule 1 (1040), this will have to be changed as well if the excess (PTC) is no longer taxable (if it's not taxable, then it can't be deductible, either).

 

My point is that this is all a non-trivial exercise since there are potentially many moving parts, and that everyone needs to hold their breath and let the IRS and the tax software vendors work through this.

 

It's simply not possible for TurboTax to have a release date if we don't even know what the IRS wants us to do.

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RobertN2
New Member

ACA Tax Credit Forgiveness

BillM223,

 

Can you update your INITIAL comment with correct information?   Your initial comment is being posted by Google right at the top of the search results for several questions related to Premium Tax Credit clawback and the American Rescue Plan. In other words, Google is showing your answer within its own results page, and it presents as being an established fact with no related discussion.

 

To clarify what I'm saying, many people using Google will never click through to the article, and even if they do, they may not read through all the replies down to reply #6 which has the correction.

 

I suggest you add an "Edit: ... applies to 2020..." right at the top of your initial comment, so that Google's algorithms pick it up, and that would allow the replies other people made to your initial comment to still make sense.

 

MaryM428
Level 6

ACA Tax Credit Forgiveness

The IRS has not yet issued guidance for how this situation will be handled.  TurboTax will work with the IRS to make sure that people who are entitled to forgiveness for the premium tax payment credit will receive the 2020 credit granted under the American Rescue Plan.  

IRS American Rescue Plan

scurcio1
New Member

ACA Tax Credit Forgiveness

It's now April 1st. I have already filled out my taxes but I am waiting as everyone else is on the credit forgiveness before I submit my forms to the IRS. Has anyone heard anything new? 

Calutex
New Member

ACA Tax Credit Forgiveness

I suspect the terminology is the confusion. For me at least. Here is my interpretation.

 

I believe both sides to this debate are correct. How can that be?

 

SHORT ANSWER

I believe the confusion is due to confusing TAX YEARS in which income / ACA subsidies received occurred and TAX FILING YEARS, which is the year after. See below.

 

TAX YEAR: Jan 1 - Dec 31, 2020, FILING YEAR DUE 27 MAY 2021*

TAX YEAR: Jan 1 - Dec 31, 2021, FILING YEAR DUE 15 APR 2022

 

*NOTE: This year's normal IRS Tax Filing deadline of 15 APRIL 2021 has been extended until 27 MAY 2021.

 

See: https://www.irs.gov/newsroom/tax-day-for-individuals-extended-to-may-17-treasury-irs-extend-filing-a...

 

And,... Done,... unless you want a more detailed interpretation

 

LONG ANSWER

There is TAX YEAR, defined as the year in which income / ACA Tax subsidy was earned / received.

 

And there is TAX FILING YEAR, defined as the year in which a tax return is FILED, which is for the PRIOR YEAR.

 

Therefore, as I read it, the income earned and / or ACA Tax Subsidy / credit received for the TAX YEAR 2020 for which the TAX FILING YEAR is 2021 - now.

 

So, what the ACA references is for those who received an ACA subsidy in TAX YEAR 2020, and who underestimated their earnings, and were it not for this recent "forgiveness" bill, would otherwise have to repay a part of their subsidy. I read that this otherwise required 2020 Subsidy repayment amount will be forgiven, and that will not have to be repaid when the person files their Return for the 2020 TAX YEAR, which would be normally be filed by April 15, 2021 has been extended until May 27, 2021 of this year.

 

(As noted in the short answer above, the tax filing extension see:

https://www.irs.gov/newsroom/tax-day-for-individuals-extended-to-may-17-treasury-irs-extend-filing-a...)

 

In summary, any ACA Subsidy repayment will be forgiven for what would normally be required during TAX YEARS 2020 and 2021; and those returns would be filed there following year in April, which is the corresponding TAX FILING YEARS of 2021 and 2022.

 

That is my understanding. The simple logic seems to be this. Our government representatives in Congress created this to apply to years affected by Coronavirus. That would be 2020 and 2021. It is retroactive to last year because the virus affected the full year. The same could be true for the current 2021 year, in which the virus is still affecting the population, economy, etc. The next year, 2022, is an unknown and wouldn't be decided yet.

 

It follows that the (earnings / ACA subsidy) 2020 and 2021 TAX YEARS correspond with the TAX FILING YEARS of 2021 and 2022, the years the taxes are filed, are what is referenced in the summary of legislation. 

 

Reasoning this through, why would the government not apply this forgiveness to the year hardest hit by Coronavirus? (Jan 1-Dec 31, 2020), and yet commit to the forgiveness for Jan 1-Dec 31, 2022? That would make no sense whatsoever. The year 2022 doesn't even begin for another 8.5 months, and that year runs 12 months for a total of 20+ months from today.

 

The coronavirus issue should be irrelevant by then. Why would they pre-plan a forgiveness so far in advance? (I suspect someone will answer with something like, "Because they are idiots! ... they are politicians!" I know, I know, ... but still...)

 

Anyway, I hope this helps.

 

EFDisaster
Level 1

ACA Tax Credit Forgiveness

@Calutex's explanation seems correct and in line with the explanation at https://www.irs.gov/affordable-care-act/individuals-and-families/the-premium-tax-credit-the-basics, which was updated in the last couple of days. It's too bad that TurboTax is going to lose out on so many filing fees by not making this update to their calculations.

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