Why do I have to pay back some of my Premium Tax Credit even though I made less income than I expected in 2020?

[thtrgrl42]

My husband and I file jointly, have a Marketplace policy that covers both he and I and his 2 children from a previous marriage (his ex-wife claims them as her dependents).  It has been agreed that we would receive 100% of all of the allocations, etc with regard to the Health Insurance.  In addition, our income was less than we estimated when we purchased the policy and received the subsidy.  Why is Turbo Tax now telling me that I have to pay back some of this Premium Tax Credit? I thought paying a portion of the subsidy back was based on estimated income?

[HelenC12]

Your tax return may not be complete. We are waiting for the IRS to give us an update on the Advance Premium Tax Credit relief provided for in the American Rescue Plan.

The Plan relieves eligible taxpayers of having to pay back any excess advance premium tax credit they took. If you used any credit to lower your monthly health insurance payment when you applied for coverage in the Health Insurance Marketplace®, you might not have to pay it back under the new law.

Under the ACA, people with incomes between 100 percent and 400 percent of the federal poverty level (from $12,760 to $51,040 for one person or $26,200 to $104,800 for a family of four) were eligible for premium tax credits to reduce their premiums for marketplace coverage.

But under the changes passed in the new law, how much people owe is reduced at every income level and capped at 8.5 percent overall.

[thtrgrl42]

Thank you for the response.  But this doesn't quite answer my question.

We did receive a subsidy for the Health Insurance Plan, based on the income we estimated for 2020.  We made less than the income we estimated.  However, Turbo Tax is still telling me that I need to pay back a portion of the subsidy (it also tells me that the recent Rescue ACT might make it so that I don't need to, which I understand).  What I don't understand is why would I need to pay back part of the subsidy if I made less than the amount of income that was estimated? 

I appreciate your assistance in any additional information.

[BillM223]

This probably is not it, but when you estimated your income at the beginning of 2020, did you include the income of the two dependents, which you should have entered in your tax return (only for the PTC calculation). As you may know the amount of PTC you should get depends on the tax family's income, not the income of the two spouses.

What are the values on form 8962 for lines 24-29?

[thtrgrl42]

Thank you for the reply.  This might be helpful to tell you, given what you're saying in the last reply.

The two children are from my husband's previous marriage.  He share custody with his ex-wife, she claims them as her dependents, but it has been agreed that we will take 100% of the allocation for the insurance.

I can't see what is on Form 8962 yet, the system just had me enter info and then it tells me that I have to pay back some of the discount and breaks it down for me.  Could this be it? Did I perhaps enter something incorrectly?

Thank you for your help.

[JohnW152]

This could potentially cause what you're seeing.

Line 1 of Form 8962 requires you to enter your Tax family size, and your Federal poverty line on line 4 is based on your line 1 entry.

According to the Line 1 instructions in the Instructions for Form 8962,

Your tax family generally includes you, your spouse if you are filing a joint return, and your dependents.

If your husband's ex is claiming the two children as dependents -- and they're not included in your Tax family size, this will change the computation you may have been expecting.