The American Rescue Plan Act of 2021 suspends the requirement that taxpayers increase their tax liability by all or a portion of their excess advance payments of the Premium Tax Credit (excess APTC) for tax year 2020. A taxpayer’s excess APTC is the amount by which the taxpayer’s advance payments of the Premium Tax Credit (APTC) exceed his or her Premium Tax Credit (PTC).
The Internal Revenue Service announced that taxpayers with excess APTC for 2020 are not required to file Form 8962, Premium Tax Credit, or report an excess advance Premium Tax Credit repayment on their 2020 Form 1040 or Form 1040-SR, Schedule 2, Line 2, when they file.
Eligible taxpayers may claim a PTC for health insurance coverage in a qualified health plan purchased through a Health Insurance Marketplace. Taxpayers should use Form 8962, Premium Tax Credit to figure the amount of their PTC and reconcile it with their APTC. This computation lets taxpayers know whether they must increase their tax liability by all or a portion of their excess APTC, called an excess advance Premium Tax Credit repayment, or may claim a net PTC.
Taxpayers can check with their tax professional or use tax software to figure the amount of allowable PTC and reconcile it with APTC received using the information from Form 1095-A, Health Insurance Marketplace Statement.
The process remains unchanged for taxpayers claiming a net PTC for 2020. They must file Form 8962 when they file their 2020 tax return. See the Instructions for Form 8962 for more information. Taxpayers claiming a net PTC should respond to an IRS notice asking for more information to finish processing their tax return.
To prepare Form 8962 for new 2020 returns in TaxSlayer Pro Desktop, on the return's Main Menu take the following steps:
- In Personal Information, answer Yes to the Health Insurance through the Marketplace/Exchange? question
Answering YES will make Form 8962 available for editing. To access Form 8962, from the Main Menu of the tax return (Form 1040) select:
- Payments, Estimates & EIC
- Premium Tax Credit (PTC)
Annual and Monthly Contribution Amounts - There are two lines that may need modification depending on the circumstances in the tax return.
- Household Income - the information in this menu pulls from the return but may need modification in certain circumstances:
- Tax Family Size - TaxSlayer Pro will automatically reduce the tax family size if a dependent or spouse can be claimed on another return. If this number needs further editing, select this line and edit as needed.
- Dependents Adjusted Gross Income
Dependents Tax-Exempt Interest
Dependents Form 2555 Amounts
Dependents Nontaxable SSA Benefits - Include information for dependents who are required to file an income tax return because their income meets the income tax return filing threshold, however don't include information for dependents who are filing a tax return only to claim a refund of tax withheld or estimated tax.
- Poverty Table to Use - There are three Federal Poverty Line tables: 48 contiguous states plus D.C., Alaska, and Hawaii. TaxSlayer Pro will choose the poverty table to use based on the address in Personal Information. However, if the taxpayer moved during the year, or if a couple filing MFJ lived in different states, choose the appropriate table that has the higher dollar amount for the same family size.
- The primary taxpayer is not lawfully present in the U.S.
- The primary taxpayer is incarcerated.
- The taxpayer files as married filing separately and is not a victim of domestic abuse or spousal abandonment.
- After entering information on the Form 8962 Menu, select the View icon in the Program Icons tray to view the completed form
- Form 8962 shows the excess APTC calculation amount on Part III line 27 and suspends the repayment with a zero amount at line 29.
Required to Repay All of the Excess APTC Received - There are several uncommon situations in which excess APTC may not all need to be paid back, and TaxSlayer Pro will calculate the limitation in these situations. Thus, it is generally best to leave this question at the default answer NO, but there are several unusual situations where the answer should be changed to YES because the individual was not eligible for Marketplace insurance and, therefore, not eligible to claim PTC or APTC:
Taxpayers who have already filed their 2020 tax return and who have excess APTC for 2020 do not need to file an amended tax return or contact the IRS. The IRS will reduce the excess APTC repayment amount to zero with no further action needed by the taxpayer. The IRS will reimburse taxpayers who have already repaid any excess advance Premium Tax Credit on their 2020 tax return. Taxpayers who received a letter about a missing Form 8962 should disregard the letter if they have excess APTC for 2020. The IRS will process tax returns without Form 8962 for tax year 2020 by reducing the excess advance premium tax credit repayment amount to zero.
This change applies only to reconciling tax year 2020 APTC. Taxpayers who received the benefit of APTC prior to 2020 must file Form 8962 to reconcile their APTC and PTC for the pre-2020 year when they file their federal income tax return even if they otherwise are not required to file a tax return for that year. The IRS continues to process prior year tax returns and correspond for missing information and may send taxpayers a letter about 2019 Form 8962. Taxpayers should respond to the letter with any requested information so that the IRS can finish processing the tax return and, if applicable, issue any refund the taxpayer may be due.
See the Form 8962, Premium Tax Credit and Fact Sheet 2021-08, More details about changes for taxpayers who received advance payments of the 2020 Premium Tax Credit.