ACA question about Premium Tax Credit and insurance deduction for Medical on SCH A

[nwtaxlady]

I see this problem with the older clients that are between retirement age and before Medicare age. Taxpayer bought healthcare thru the Marketplace. They got the advanced payment of the Premium Tax Credit. Well, guess what? They have way too much investment income and too much Social Security. So that increases their Household income over the limit. Now they don't qualify for the PTC and have to pay it ALL back. So here are the figures.

In column A for Monthly Premium Amount Total for the Taxpayer & Spouse is $10,809.

Column C for Monthly Premium Advanced Tax Credit total is $3476.

So my question is. What is the deductible amount for medical insurance paid to put on SCH A?

Is it the $10,809 LESS the Adv Tax Credit of $3476 which equals = $7333

or since they don't qualify for the Premium Tax credit, is it the Whole amount $10,809?

I can't find anywhere, where this situation is addressed.

[nwtaxlady]

Don't tell me none of you have NOT come across this?

I can't believe all the "VIEWS" and no response.

[Bees Knees]

It is no different than anything else that has to be paid back. The subsidy was received in 2014, but it is not being paid back until 2015. So assuming your client is a cash basis taxpayer (which 99.99999% of all individuals are), the tax deduction on Schedule A is the net amount paid (after reducing the total by the advanced payments).

We don't know how IRS will handle repayments of the PTC for 2015 tax returns because that is not an issue for 2014 returns, but I assume (with 99.999999% confidence) that you will get to add any repayment of the APTC in 2015 on Schedule A when the 2015 return is filed.

[TaxGuyBill]

I've looked too, and I don't think it's specifically addressed yet.

As Bees pointed out, a cash basis taxpayer would only count the actual out-of-pocket cost.

HOWEVER, Revenue Procedure 2014-41 (the Self Employed Health Insurance deduction in connection with the Premium Tax Credit) allows the SEHI deduction to be the NET result AFTER the final calculation of the Premium Tax Credit. In other words, the 2014 SEHI deductible amount includes any 'repayment' of the Advance credit, even though the repayment isn't done until 2015.

If the same rules were applied to Schedule A, the full $10,809 would be deductible on Schedule A.

I would gladly see any more discussion on this matter.

[tpnl]

Any more thoughts on this issue?

I'm working on my first tax return where the taxpayer has to pay back ALL their PTC. Anybody find that the entire premium would be deductible on Schedule A (not self-employed)?

I agree that SEHI have the rules to add any PTC payback to their deduction, so I would think the same would apply to the schedule A. However, we all know the IRS sometimes doesn't rationally apply rules/common sense.

Thanks,

Kerrie

[Burke]

I have the same problem this week and was thinking the same thing. It would be great to deduct the entire insurance premium this year since that would reduce the amount to pay the IRS, but I didn't see where that was possible under the existing rules. The out-of-pocket outlay for insurance was one figure, and the payback will be in 2015. So I was planning on using that payback as a medical deduction in 2015. But it won't really be a payment for medical insurance, so that is another question. But one must reduce medical expenses by any reimbursement for expenses deducted in a previous year, so why wouldn't the reverse be true?

In the case of the SEHI, it is a little bit different in that the SEHI reduces AGI which is used on Sche A to calculate the medical deduction floor. This is not the case with someone who itemizes but does not have SEHI to deduct. Still, I kind of lean toward using the same theory. I guess we will have to wait for a ruling as it is bound to come. My TP will also have to pay back the subsidy for 2015 next year, which he is still getting until we can get it stopped. Still don't know how he ever qualified for it in the first place, since income hasn't changed in years, nor # of persons in the household.

Another thought. Technically the TP DID pay this, through the withholding which he will NOT now be getting back as a refund. But since he is having to pay something even if I do deduct it, I suppose that argument won't fly unless I reduce the medical deduction for the PTC by the actual amount he will be paying back. Does that make sense? That would be another "circular calculation." And it would not help someone who could not itemize their medical expenses or took the standard deduction. Years ago we used to reduce the deductible state tax on the Sche A to the actual amt of liability so that we wouldn't have to report the refund the following year. The IRS made us stop doing that. I guess it was too much trouble for them to figure it out.

[Lion]

Revenue Procedure 2014-41 contains four examples going through these calculations.

Also, NATP has talked about your question.

[Burke]

As far as I can tell, all the examples involve SEHI. My case does not, but I will check the NATP website. Thankis.

[TaxGuyBill]

Look at the March 12th comments here:

http://www.natptax.com/TAXKNOWLEDGECENTER/FEDERALTAXINFORMATION/Pages/YouMaketheCall.aspx

[Burke]

Well, I swan! Fantastic! I thank you and my client thanks you. Saves $740 counting federal and state. Unfortunately, I am assuming this will not help someone who still could not itemize. Perhaps those will be few.

[nwtaxlady]

Thanks TAXGUYBILL !

Thank you for the response and pointing us to the right direction. Now I have another question regarding the ACA insurance paid, but I will post a separate Thread!!