I did a bit more research and asked Claude.ai about the order of operations. It says that PTC should be applied after LLC which makes sense to me but is the opposite of how TurboTax works. How can I override the order?
Claude response:
Let me explain the tax credit ordering from a tax preparation perspective.
The order of tax credit application isn't arbitrary - it's determined by IRS rules and optimized for maximum benefit to the taxpayer. The Premium Tax Credit (PTC) for ACA healthcare is considered a refundable credit, while the Lifetime Learning Credit (LLC) is nonrefundable.
Here's why the order matters:
- The PTC must be calculated first because it can affect your modified adjusted gross income (MAGI), which in turn impacts your eligibility for other credits like the LLC.
- The LLC is nonrefundable, meaning it can only reduce your tax liability to zero but cannot generate a refund. It's limited by your tax liability after other adjustments.
- The PTC is refundable, which means you can receive it as a refund even if you have no tax liability. By applying it after nonrefundable credits, you ensure you get the full benefit of both credits.
If you were to reverse the order, you might actually receive less total credit because:
- The LLC might reduce your tax liability first
- Then the PTC would be calculated based on the reduced liability
- This could result in a smaller total credit amount
The IRS ordering maximizes your total credit by ensuring nonrefundable credits can offset as much tax liability as possible before refundable credits are applied.
