Why is Turbotax applying the available foreign tax credit from form 1116 against the amount of the advance premium tax credit calculated as due for repayment under 1095-A

[gbriel]

I have a FTC re Form 1116 and that credit is seemingly being used to reduce the USA tax due AND ALSO the calculated amount due re form 1095-A and the excess advance premium tax credits paid to me in 2024 that were due to be repaid. Can a FTC also be applied against the amount due to be repaid for the tax year under the ACA, as I cannot find anything that explains this being allowed despite the Turbotax online software clearly showing an elimination of that ACA related amount due by applying the FTC?

[DaveF1006]

TurboTax applies the available foreign tax credit from Form 1116 against the amount of the advance premium tax credit (APTC) calculated as due for repayment under Form 1095-A because both credits are part of your overall tax liability calculation. The foreign tax credit reduces your U.S. tax liability for taxes paid to a foreign country, while the APTC is an advance payment of the premium tax credit to help cover health insurance premiums.

When you file your tax return, TurboTax calculates your total tax liability, including any credits and repayments. If you have a foreign tax credit available, it will be applied to reduce your overall tax liability, which includes any repayment of the APTC.

[gbriel]

Thank you for that response.  I knew that the FTC generated subsequent to completing form 1116 was available to offset my USA tax liability on the reported income, but I was unaware that it could also be applied to the premium tax credit that was calculated as being due for repayment by me for 2024.  The FTC available is more then enough to cover the USA tax liability and also the premium tax credit calculated as being due to be repaid by me re form 1095-A, leaving the unused FTC available as a carry forward.  I could not find an explanation for this anywhere, but it was clear the online TurboTax software was applying the ftc against both the regular income tax due and also the ACA related premium tax credit due to be repaid by me.  I assumed that the FTC would only be available to reduce or eliminate the USA tax due on that same income that was taxed by the foreign country and since the foreign country doesn’t address the healthcare related tax credit to be repaid I did not thing the FTC would be applicable to that too in eliminating it from what I owed on my 2024 USA tax return.

[DaveF1006]

 To clarify, was your APTC payment reduced? If so here is an explanation. 

1. The reduction in your Advance Premium Tax Credit (APTC) payment due to the Foreign Tax Credit (FTC) can be attributed to the way your overall tax liability is calculated. When you claim the FTC, it reduces your U.S. tax liability on foreign income. This, in turn, affects the calculation of your household income and tax liability, which are key factors in determining your eligibility for the APTC. Here's a simplified breakdown:

• Household Income: The APTC is based on your household income, which includes your adjusted gross income (AGI) and any foreign income. When you claim the FTC, it reduces your U.S. tax liability, which can affect your AGI.
• Tax Liability: The APTC is designed to help lower your health insurance premiums based on your tax liability. If your tax liability is reduced due to the FTC, it can result in a lower APTC payment.

[gbriel]

Yes, prior to completing form 1116 and re-sourcing the USA and Canada interest income to Italy and generating the FTC, the software was showing that I had bot( a USA tax liability on that same interest income and also an amount to repay for excess premium tax credits received during 2024 under the ACA.  After the FTC was generated by completing form 1116, most of the USA tax liability and the amount due to be repaid for excess premium tax credits was eliminated (not quite 100%, but most of both).  I knew the FTC could of course be applied in reducing the USA tax being calculated on that same income being taxed by Italy, but I was surprised to see that the FTC could also be applied against the excess premium tax credit that was showing as being due by me re form 1095-A.

[DaveF1006]

Yes, if the tax liability is reduced then the ACA repayment is reduced also. This is based on the assumption that a portion of your adjusted gross income has been reduced because of the reduced tax liability caused by the Foreign Tax Credit. 

[gbriel]

I do not believe that AGI or Taxable Income changed from what it was prior to completing Form 1116 to generate the FTC.  Once the FTC was generated it simply appears to have been applied to the previous amounts showing for Tax Due and the ACA related repayment due in substantially reducing those liabilities.