In July 2020 client receives a rebate for health insurance premiums paid in 2019 because of state laws that say the insurance company must pay out a certain percentage of premiums as medical expense, the premiums were deductible as client is self employed, also the insurance was purchased in a state exchange and client received premium credit on his/her 2019 return, how is this handled on the 2020 return?
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I had one of these for my own health insurance in 2020. :-)
There is no adjustment to the 2019 PTC. The IRS has said it would issue guidance on how these rebates would affect the PTC but have never issued any guidance to date!!!
For the income tax impact the usual tax benefit rules apply. So if you got any tax benefit from deducting the original premiums then any rebate received in 2020 will be taxable in 2020 to the extent of the tax benefit. -
Thank you AZUKHiker, the treatment of the PTC is what had me wondering, the deduction part is pretty straight forward, odd that they have not issued any guidance on the PTC.Comment
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Just one thing to add to AZUKHiker's great comments ... even if/when the IRS were to issue guidance to recalculate the PTC (which is logical), the result will usually not actually change the PTC.
The PTC isn't directly calculated using the premiums. It is primarily based on the Second Lowest Cost Silver Plan (column B of the 1095-A and 8962). The actual premiums only come into play if the potential credit (column "d" of the 8962) is larger than the premiums (see column "e" on the 8962). So if the PTC is less than the adjusted premiums (adjusting for the rebate), it would not change the PTC.Comment
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You are right TaxGuyBill, after working some examples through I see now, Thanks for the help.Comment
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