ACA advance premium credit repayment -- claim of right?

[appelman]

Please forgive me if this has been answered before. A self-employed taxpayer received in 2014 an ACA advance premium credit that he has to repay in 2015. In 2014 he reduced his above-the-line self-employed health insurance deduction by the amount of credit he received. Can the repayment made in 2015 be deducted above-the-line as self-employed health insurance on the 2015 return, or must it be handled according to the general claim-of-right rules?

[TaxGuyBill]

It is all balanced out on the 2014 return. It won't affect the 2015 return at all.

As you said, the SEHI deduction was already reduced by the repayment, so that already takes into account the repayment.

[appelman]

I think not.

It is all balanced out on the 2014 return. It won't affect the 2015 return at all.

As you said, the SEHI deduction was already reduced by the repayment, so that already takes into account the repayment.

Or perhaps I should say, maybe not quite. The SEHI deduction in 2014 was reduced by the amount of advanced credit. The credit has to be repaid in 2015 when the 2014 return is filed. The question is: Can you just INCREASE the 2014 SEHI deduction by the amount of the repayment, or do you have to treat the repayment as a claim of right payment in 2015? And if the latter, can it be taken as an additional SEHI deduction in 2015, or must it go to Schedule A?

It is sort of a mirror image of the situation where you overpay your estimated state tax and have to report the refund as income in the following year.

[TaxGuyBill]

I understand your thinking, but as I said, it does not affect the 2015 return at all.


The state refund added to income is different than an Advance credit and final calculation of the credit. With the State income taxes, you received a deduction on the 2014 tax return. You then received the State tax refund, so it is counted as income in 2015 to offset the prior deduction.

The repayment of the Premium Tax Credit is more comparable to repaying loan. No deduction was taken on the 2014 tax return, so nothing needs to be done on the 2015 tax return to offset it.


Does that make any sense?

[David1980]

I understand your thinking, but as I said, it does not affect the 2015 return at all.


The state refund added to income is different than an Advance credit and final calculation of the credit. With the State income taxes, you received a deduction on the 2014 tax return. You then received the State tax refund, so it is counted as income in 2015 to offset the prior deduction.

The repayment of the Premium Tax Credit is more comparable to repaying loan. No deduction was taken on the 2014 tax return, so nothing needs to be done on the 2015 tax return to offset it.


Does that make any sense?

I think you're answering a different question than the question being asked. Perhaps the question being asked will make more sense with some fake numbers added.

In 2014, taxpayer purchases insurance through the exchange. The insurance cost is $12,000 but they get APTC that covers $8,000 of it and the taxpayer pays the other $4,000. Now in 2015 when preparing the 2014 tax return the taxpayer discovers they qualify for PTC of $0 and he has to repay the APTC - the full $8,000.

Taxpayer is self-employed and will be taking a SE health insurance deduction. The question is: How much should taxpayer deduct on line 29 - assuming they've got the business income and such... Do they deduct $4,000, $12,000, or some other value on line 29 of the 2014 tax return?

[TaxGuyBill]

I think you're answering a different question than the question being asked. Perhaps the question being asked will make more sense with some fake numbers added.

In 2014, taxpayer purchases insurance through the exchange. The insurance cost is $12,000 but they get APTC that covers $8,000 of it and the taxpayer pays the other $4,000. Now in 2015 when preparing the 2014 tax return the taxpayer discovers they qualify for PTC of $0 and he has to repay the APTC - the full $8,000.

Taxpayer is self-employed and will be taking a SE health insurance deduction. The question is: How much should taxpayer deduct on line 29 - assuming they've got the business income and such... Do they deduct $4,000, $12,000, or some other value on line 29 of the 2014 tax return?

Hmmm. I THOUGHT, I was understanding the question correctly, but now that you point it out, maybe appelman may be misunderstanding how the 2014 SEHI deduction worked. Thank you.


In your scenario, the 2014 tax return would have a SEHI deduction of the full $12,000. The repayment (made in early 2015) is already factored into the 2014 SEHI deduction. Therefore the repayment does not affect the 2015 return.

If appelman thought that the 2014 SEHI deduction was $4,000, then he would have been correct. There would need to be some type of offset on the 2015 tax return. However, that is not how the SEHI works in connection with the Premium Tax Credit.


Thanks again for helping us to clarify things.


Appelman: Does that clarify it at all?

[appelman]

Well, maybe!

[QUOTE=TaxGuyBill;176811]
If appelman thought that the 2014 SEHI deduction was $4,000, then he would have been correct. There would need to be some type of offset on the 2015 tax return. However, that is not how the SEHI works in connection with the Premium Tax Credit.

TGB, can you give chapter & verse for the above? It seems to me that the issue is one of cash accounting principles. Taxpayer only paid 4K in 2014; the rest was paid in 2015. What is the basis for handling this differently than when someone pays half of a big medical bill in December and the rest in the following January?

[kathyc2]

It does go against cash accounting principals, but the procedure of how to handle it is spelled out in Rev Proc 2014-41.

[Rapid Robert]

If appelman thought that the 2014 SEHI deduction was $4,000, then he would have been correct. There would need to be some type of offset on the 2015 tax return. However, that is not how the SEHI works in connection with the Premium Tax Credit.

TGB, can you give chapter & verse for the above? It seems to me that the issue is one of cash accounting principles. Taxpayer only paid 4K in 2014; the rest was paid in 2015. What is the basis for handling this differently than when someone pays half of a big medical bill in December and the rest in the following January?

See Pub 974, which has an illustrated example, and which also includes the following statement:

"[...] the amount of the self-employed health insurance deduction is based on the amount of the PTC"

This means, you can't figure out the 2014 SEHI deduction correctly without taking into account the actual PTC. The Advance PTC, as mentioned previously, is just a "loan" based on an estimate, and really has nothing to do with the final result -- only the actual PTC matters, which is not calculated until sometime after 2014.

[appelman]

I'm convinced!

OK, I'm convinced.

An interesting question is whether the same reasoning would apply if the only deduction were as a medical expense on Schedule A. Anyone have an idea?

[TaxGuyBill]

According to Publication 502, the same principal seems to apply for medical deductions on Schedule A.


You can include in medical expenses insurance premiums you pay for policies that cover medical care. You cannot include in medical expenses insurance premiums that were paid and for which you are claiming a credit or deduction.

https://www.irs.gov/publications/p502/ar02.html#en_US_2014_publink1000178947

[appelman]

That's not the same principle, it's the opposite!

According to Publication 502, the same principal seems to apply for medical deductions on Schedule A.


You can include in medical expenses insurance premiums you pay for policies that cover medical care. You cannot include in medical expenses insurance premiums that were paid and for which you are claiming a credit or deduction.

https://www.irs.gov/publications/p50...link1000178947

As I understand it, that would say you would deduct the repayment as a Schedule A medical expense in 2015.

[TaxGuyBill]

Hmmm. That's not how I read it. Remember, the Advance credit is only a loan. Maybe we can make sense of it with numbers.


Let's use this for an example scenario:
Full cost insurance = $12,000
Advance Credit = $8,000
Out-of-Pocket cost in 2014 = $4,000
ACTUAL Premium Tax Credit = $6,500
Repayment in early 2015 = $1,500

The cost of insurance was $12,000, but the Advance of $8,000 was only a loan. Because it was fully paid (partially from a loan), as that stands, $12,000 would be deductible.

We are now "claiming a credit" for $6,500, so $6,500 of the $12,000 is not deductible. So $5,500 is able to be deducted on Schedule A. Because that already included the repayment, nothing is done on the 2015 return.


Do you interpret it differently?

[appelman]

Hmmm. That's not how I read it. Remember, the Advance credit is only a loan. Maybe we can make sense of it with numbers.


Let's use this for an example scenario:
Full cost insurance = $12,000
Advance Credit = $8,000
Out-of-Pocket cost in 2014 = $4,000
ACTUAL Premium Tax Credit = $6,500
Repayment in early 2015 = $1,500

The cost of insurance was $12,000, but the Advance of $8,000 was only a loan. Because it was fully paid (partially from a loan), as that stands, $12,000 would be deductible.

We are now "claiming a credit" for $6,500, so $6,500 of the $12,000 is not deductible. So $5,500 is able to be deducted on Schedule A. Because that already included the repayment, nothing is done on the 2015 return.


Do you interpret it differently?

Let's look at a deferred medical payment as a guide:

You have a 12K dental bill for services in 2014. The dentist "lends" you 8K, so you only have to pay him 4K in 2014. You then "repay the loan" in 2015. There is no question that you would deduct 4K in 2014 and 8K in 2015. In both this case and the ACA credit case, the "loan" is from the provider. It is not as though you went to a bank and took out a loan to pay the medical bill or pay for the insurancer.

[TaxGuyBill]

the "loan" is from the provider.

No it's not. The loan is from the US government. Unlike the dentist, the health insurance company is paid in FULL each month (partially by you and partially by the US Government).