The American Rescue Plan Act brought a third round of Economic Impact Payment and plenty of changes to tax credits, including how the agency approaches the Premium Tax Credit (PTC).
The requirement that taxpayers report and repay any excess advance payment of the PTC on their income tax return has been suspended—but only for tax year 2020.
What is the Advance Premium Tax Credit?
The Premium Tax Credit helps Americans pay for health insurance that’s purchased through the Health Insurance Marketplace.
When someone applies for coverage, the Marketplace estimates the amount of the Premium Tax Credit the taxpayer can claim for the year of coverage. The estimate is based on the size of the taxpayer’s family and their projected household income.
Taxpayers can choose how much—if any—of the estimated credit will be paid directly to the insurance company for their premiums. These advance payments of the Premium Tax Credit (APTC) can go to the insurance company, or to the taxpayer.
If the APTC goes to the taxpayer, they are responsible for their monthly insurance premiums and can claim all the PTC allowed when they file their tax return.
Previously, taxpayers with excess APTC would have to file Form 8962, Premium Tax Credit, or enter the amount on Line 2 of Form 1040 or Form 1040-SR, Schedule 2.
The American Rescue Plan Act of 2021 puts that requirement on hold for tax year 2020 returns.
The suspension for reporting does not apply, however, to those taxpayers who have net PTC.
Net PTC means the taxpayer’s PTC for 2020 is more than the APTC paid for their health insurance and family members’ coverage for 2020. Net PTC can also happen when the taxpayer was allowed a Premium Tax Credit for 2020, but didn’t get an advance payment.
These taxpayers should report their net PTC using Form 8962 when they file their 2020 tax return. The IRS says some taxpayers may get a notice requesting more information. If they do, taxpayers should respond to that notice immediately.
What if a taxpayer has already filed?
Taxpayers who have excess APTC for 2020 and have already filed don’t have to contact the IRS or file an amended return. The IRS says it "will reduce the excess APTC repayment amount to zero with no further action needed by the taxpayer."
Those who have already repaid excess advance Premium Tax Credit on their 2020 returns will be reimbursed by the IRS.
Sources: IRS suspends requirement to repay excess advance payments of the 2020 Premium Tax Credit; Fact Sheet 2021-08 - More details about changes for taxpayers who received advance payments of the 2020 Premium Tax Credit;