2020 Qualified Disaster Distribution and Affordable cares Act

[Jshumbris]

I took a 2020 Qualified Disaster Distribution and allocated it over 3 years. In 2022, I applied for marketplace health insurance and received an advanced premium tax credit. I am being told by turbo tax program I have to repay it all back because I didn’t qualify due to allocation of the distribution in 2020. I did not receive that money in 2022, but understand I opted to have it count as income over 3 years. I however was not aware that this money I didnt get in 2022 would put me over limit to be eligible for the ACA credit. I didn’t have the money to use for health insurance in 2022 so why am I being penalized and why does it even count for ACA credit calculation. 

[JosephS1]

Unfortunately in your case there is little you can do to mitigate the payback of the Premium Tax Credit.  The ACA/PTC calculations are based on the current taxable income regardless of source.  Your spreading of what I assume is your Covid IRA/Pension distribution from 2020 over the next 3 years put you into this predicament.  The link below to the IRS webpage pertaining to your situation should assist you further in understanding what occurred.

Premium Tax Credit

@Jshumbris 

[Jshumbris]

I am beginning to think that allocating the distribution over 3 years was the dumbest thing I could have ever done. Could I go back in time amend my 2020 and 2021 returns and get rid of taking the credit over 3 years? I am going to end up paying way more in taxes now than I would have had I not done this. My husband became disabled in 2020 and had received LTD until July 2023 when he became eligible for Social Security Disability. They gave him a retro active which was paid back to LTD company and I offset the repayment using the other credits for repayments over $3,000, but that was only the repayments for 2020 and 2021. The amount they offset his LTD for 2022, they included in his tax statement as well as social security so our income is over stated for that reason as well bc it’s included in social security as well and I can’t get the LTD to correct the statement to match what money we received from them. So between that and the carry over of the distribution it put our income over the limitation and we owe $7,320 just for the insurance. In 2020, if I hadn’t allocated the money over 3 years I would have owed around $3k, but did get a refund of $3.5k from taxes I had withheld from the distribution, but I credited it to my 2021 taxes, thinking it would cover at least my 2021 taxes I would owe on $33k portion of the distribution and was wrong and owed additional $3k on top of that, and now this year I owe another $10k because of the $7k health part (I made estimated payments of $3k towards the amount I assumed I would owe bc our income didn’t change and actually became less in 2022. However I read that you can’t make adjustments for social security overpayments on amended returns, not as if it would change my 2020 income much other than the overpayment amount I was taxed on for 2020 bc it was reported as LTD benefits would not have been taxable. If I did amend my 2020 return though and went back to owing for that year how bad would they penalize me given I would have owed half or less than amount I paid for 2021 taxes. Would the IRS, combine the two years to offset the amount I would for 2020 with the amount I would have got back for 2021? I am sorry, but our actual income for 2022 was $32k in social security benefits and $16k in LTD benefits that they reported as $33k, but $48k was the actual amount we brought in and to have to pay have $15k for health insurance for market place insurance, $664 for supplemental Medicare once my husband went on that, and $1,056 for my sons insurance through our states Chip plan seems unfair. Health insurance should not cost over $1k a month for any person. 

Wondering if I should take the time to amend my returns or if it would be a waste of my time bc of some other convoluted misleading Tax regulation?

Appreciate your opinion.

[KristinaK]

It seems that in your situation, the best thing to do is to run some "mock" returns and see what the numbers show. 

Here is some information about the deadline for amendments. 

And here is some information on how to actually do it. 

[AmeliesUncle]

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@Jshumbris wrote:

Could I go back in time amend my 2020 and 2021 returns and get rid of taking the credit over 3 years?

I am going to end up paying way more in taxes now than I would have had I not done this.

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Unfortunately, no.   The election to take the Covid retirement distribution in one year had to be made by the due date of the 2020 tax return.  So you can't change it now.

Unfortunately, that may be the case.  I've often said that if a person wants to pay more taxes, they should do their own tax returns (such as with TurboTax).  A good tax professional could have advised you to do it differently.

[Critter-3]

@AmeliesUncle   is correct ... you cannot amend 2020 & 2021 to pay the taxes on the 2020 return only once you have made the election.   Your only option would be to amend the 2020 &  2021 returns ONLY IF you pay back the entire distribution to negate the original distribution which will probably hurt much more in the long run ... but if you could repay some or all of the distribution  then you may have an option.