Refund of Obamacare premiums due to the 80/20 rule for a client with a subsidy

[lenboush]

In 2019 a client received a substantial refund of 2018 premiums paid for Obamacare. It was received due to the 80/20 rule. If there had been no subsidies, this would not be an issue. It's simply a refund of premiums paid. Unfortunately, the client received a substantial subsidy. I am unsure as to what to do with this. Do I claim it as income this year? Do I amend 2018 to reflect the changes that would have been on the 1095-A? Is there another way it should be handled. They definitely did receive a tax benefit in 2018.

Any ideas?

Thanks in advance!

[Lion]

https://www.irs.gov/newsroom/medical-loss-ratio-mlr-faqs

[TaxGuyBill]

They definitely did receive a tax benefit in 2018.

If they benefited from the medical deduction on Schedule A or the Self Employed Health Insurance deduction, then you will need to add that refund (up to the amount of benefit) on the 2019 tax return.


As for the Premium Tax Credit, in MANY/MOST cases, the lower premiums would NOT affect the amount of Premium Tax Credit, so there would be nothing to change. That is because the Premium Tax Credit is largely dependent on the Second Lowest Cost Silver Plan (SLCSP), rather than the actual cost of insurance. So if the total Premium Tax Credit is LOWER than the total ADJUSTED premiums (after taking into account the refund), there would NOT be a change, and therefore nothing to change.

If the total Premium Tax Credit is HIGHER than the ADJUSTED premiums, then that would have changed the amount of the Premium Tax Credit, then that gets into the questionable area. Up until the last month, there has been NO IRS guidance in that matter, but he IRS just added Q-15 to the link that Lion gave you.

As of now, that webpage just says not include it in income, but "The Treasury Department and the IRS are considering the issuance of guidance applicable to future tax yearsthat will address whether a taxpayer must increase his or her tax liability for the year of the receipt of the MLR rebate to the extent the taxpayer was allowed a premium tax credit for the portion of the taxpayer’s prior-year premium that was refunded."

[rbynaker]

Thanks Bill. I tried to research this last year but found nothing about recapture of PTC. I was wondering if I just missed the Q&A #15 last summer but glad to hear it was just recently added!

I couldn't find any authority on this. IRS website FAQs don't constitute authority but it at least points us in the direction of what an auditor may (or may not) focus on. <shrug>

Rick

[lenboush]

https://www.irs.gov/newsroom/medical...ratio-mlr-faqs

thanks!!!!