Medical Loss Rebate Check and how to get to line 12 a box 3 in Turbo Tax form 1040?

[BREAKS007]

Our healthcare was purchased through the MarketPlace in 2018 and 2019.  This September 2019, we received a Medical Loss Ratio Rebate Check for year 2018.

The IRS plans to update their FAQ section hopefully in 2-3 weeks (from 1/28/2020) since it hasn't been updated since 2012 on this subject,  I was informed  that we need to pay this back. The gal told me to enter the amount we received on line 12(a) box 3 (which is a fill in box) on the form 1040 for it should be considered a "tax due" in our situation.    Where in Turbo Tax can I find line 12( a) that will let me enter MLR Rebate and the amount received in Box 3 ?

I was told every person's situation can be unique.  We were not part of any employer group obtaining Marketplace insurance and we claim the standard deduction.  She informed not this should not be reported as income but as a tax due.

[JulieS]

I am not sure that what you were told is correct. Here is an excerpt of the IRS instructions for line 12a of Form 1040.

"Repayment of any excess advance payments of the health coverage tax credit from Form 8885. Check box 3 and enter the amount of the repayment and "HCTC" in the space next to that box."

The HCTC is a credit for businesses to provide coverage for their employees through the Marketplace. The instructions do not say anything about the Advanced Premium Tax Credit, which is the credit that individuals get to help pay for their insurance.

I checked the Turbo Tax program, and not surprisingly, it doesn't have way to enter that information.

In general, if your deducted your premiums as an itemized deduction or self-employed health insurance, you would have to report the check as taxable income. 

I wish I could be more specific about this, but I was not able to find any guidance from the IRS on this topic. 

[AmeliesUncle]

In itself, it certainly is NOT "tax due" on Line 12a of Form 1040.

Were you (or your spouse) self employed, and did you claim the Self Employed Health Insurance deduction?  If not, it is NOT added to your taxable income either.  However, if you received a 1099-MISC, you can avoid an IRS letter by entering it as income, then 'backing it out' by another entry using the negative amount.

If you received the Premium Tax Credit, that SOMETIMES could be a "gray area".  In MOST cases, the Premium Tax Credit is NOT based on the amount of the Insurance Premium (it is based on the Second-Lowest-Cost-Silver-Plan, or SLCSP).   If that was the case with you and would continue to be true using the lower modified insurance premiums (after the MLR you received), then NOTHING would be changed, and you would not need to worry about anything because it will NOT affect your tax return.

In a few cases the amount of the Premium Tax Credit is based on the amount of the insurance premium.  It that was the case with you (or if it would be the case if you used the modified amounts, after the MLR), then that is the "gray area".  It is a "gray area" because logic and math would dictate it SHOULD affect your tax return (some or all could be added to the "tax due").  However, as far as I know, the IRS has NOT addressed this point. 

[BREAKS007]

Thank you for your opinion. 

The HCTC from what I read in the IRS guidebooks is totally different from Marketplace Insurance Medical Loss Ratio rebate check.  I decided to do my taxes manually, on paper and I sent them in.  I wasn't able to find out how to enter this properly in turbo tax.  And I don't see any screen for where we can ask Turbo Tax for advice unless you pay for it possibly. 

I followed the instructions of the 3rd person at the IRS that I was transferred to since the first two were not able to answer me.  This person seemed to know what she was talking about so I reported the amount we received as a tax due (this is what she told me to do) and I was told do not report the Medical Loss Ratio Rebate as income.  This all makes sense since the government paid 99% of the premium via subsidies.

We were not self employed nor were we employees.  We are retired and obtained Marketplace insurance until we were able to get on Medicare.  Our insurance provider simply sent out these MLR checks because they were required to since they must not have paid out on claims to a certain per centage in 2018.  They informed us that they would not be sending any 1099 and it was our responsibility to figure out what to do about taxes.  All they stated was that the check was ours to keep.  I guessed this should not have been sent back to us but to the government.  So in essence, from what the IRS expert stated, by us showing it as a "tax due" on line 12 (a) and marking box 3 which is blank for a comment section, we would be paying it back via our tax returns.   

Personally, I think there should be a better system and the insurance provider should send it back to the government.  I'm sure there will be many people who will not report this since they may not be receiving any 1099misc, etc.  However, I think  the government will be given a listing of all those who received any MLR checks this past year.  And wouldn't you think they'll be checking each person's scenario and asking for their money to be returned??

I'll keep watching the IRS Frequenty Asked Questions in the Medical Loss Ratio page to see when they will address this for this year.  The IRS gal stated this was at the top of her priority list to have this reviewed and hopefully an answer would be posted.  I don't have time to wait so I sent in our taxes with the amount owed.  I also included a letter explaining what we were doing and what I was told since I had the IRS agent's badge number written down.  If they don't like it and return our returns, I'll post something again, but I'm hoping they accept it and keep their monies.

[AmeliesUncle]

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@BREAKS007 wrote:

This all makes sense since the government paid 99% of the premium via subsidies.

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That does put you in the "gray area", where math and logic would dictate that most of it should be repaid as "tax due".  However, as you found out, there is no IRS guidance on this matter.

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@BREAKS007 wrote:

Personally, I think there should be a better system and the insurance provider should send it back to the government. 

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The insurance provider can't do that because as I explained in my first comment, in MOST cases a reduction of insurance premiums would NOT change anything (or only have a minor effect).  The insurance provider has no idea of the final results of your tax credit on your tax return, so that means the insurance provider would not be able to determine how much (if any) would need to be returned.  Unfortunately, that burden falls on each individual, and without IRS guidance, it makes it difficult to figure out what to do.