Bonehead IRS guidance on Form 8962 (Premium Tax Credit)

[Rapid Robert]

I don't understand the reason behind the IRS "deleting" Form 8962 from tax returns if they show a payback of excess advance payments of the PTC. All they have to do instead is zero out Line 2 of Schedule 2.

The problem is that the form is still required for a number of items on the tax return, such as calculating SEHI, Schedule A medical deductions, and in the case of California, determination of the state credit (subsidy) for health insurance premiums. So once the form is dropped from the return, how are those calculations supposed to be shown? Remember, someone could still actually have a refundable PTC even though it is more than offset by the advance payment. Plus, all the instructions for Form 8962 and 1095-A are now made obsolete, when there is no reason for that to happen. Again, one simple change to one line on Schedule 2 would accomplish the same thing with a lot less dysfunction.

Looking at TY2020 in the future, it will be very puzzliing why the taxpayer received a Form 1095-A and yet had no Form 8962 with the return.

[TaxGuyBill]

The problem is that the form is still required for a number of items on the tax return, such as calculating SEHI, Schedule A medical deductions, and in the case of California, determination of the state credit (subsidy) for health insurance premiums. So once the form is dropped from the return, how are those calculations supposed to be shown?

While I agree it is rather odd that the IRS just wants to delete the form, why do you need Federal Form 8962 for those things?

If you had non-marketplace insurance, you wouldn't need a special form to enter SEHI or Schedule A medical deductions. You just enter the expense paid. So if your software doesn't automatically take the information from the 1095-A, you just enter the amount paid as if you had non-Marketplace insurance.

As for California, these mid-season changes are frustrating, but it would end up being a California-specific form or calculation, so the IRS doesn't care about that. It would become something that California and/or the software providers would need to deal with.

[Anarchrist]

Early guidance from the irs was to delete the 8962 or wait for software updates if one had a repayment of APTC. If one had excess PTC, the form was not to be deleted. Thus all the instructions for 8962 & 1095-A are not obsolete. At this point, most if not all software has updated the 8962 and zeros out line 29.

[TaxGuyBill]

At this point, most if not all software has updated the 8962 and zeros out line 29.

ProSeries deletes it.

[Lion]

ProSytem fx: Form 8962, Premium Tax Credit (PTC) - Due to the recently passed American Rescue Plan Act of 2021, the Advanced Premium Tax Credit does not need to be repaid. Based on guidance from the IRS, where the advanced Premium Tax Credit or a portion of it would need to be repaid, Form 8962 is not to be filed with the return, and no amount is reported on Schedule 2, Additional Taxes, Line 2, Excess advance premium tax credit repayment. Form 8962 is prepared with zero (-0-) reported on Line 29. Form 8962 and the associated worksheets will be included in the Accountant and Client copies of the return, but will not be included with the Government copy or included in the electronic filed return per the IRS guidance.

[Rapid Robert]

If you had non-marketplace insurance, you wouldn't need a special form to enter SEHI or Schedule A medical deductions. You just enter the expense paid. So if your software doesn't automatically take the information from the 1095-A, you just enter the amount paid as if you had non-Marketplace insurance.

But SEHI with PTC is a special case. As we all know there is a circular calculation needed because PTC depends on AGI, and AGI depends on SEHI, and SEHI depends on PTC. Remember, just because there was excess advance payment of PTC doesn't mean there wasn't also PTC, in the end, but now that necessary information is suppressed from the return.

My software (UltraTax) also just removes the form from the return, unless forced. I agree the calculations may all still be available, but my main point was, if in the future all you have from the client or the IRS is a copy of the government copy of the tax return, with none of the non-required worksheets and statements, you will have a much harder time trying to put together all the missing pieces.

I'm not saying that what the IRS did was wrong, simply that it could have been accomplished much more simply, with much less collateral damage.

[Lion]

Make sure you request the client's copy or the accountant's copy for new clients next year. (I'm not taking new clients, so all the information is in my software.)

[TaxGuyBill]

But SEHI with PTC is a special case. As we all know there is a circular calculation needed because PTC depends on AGI, and AGI depends on SEHI, and SEHI depends on PTC. Remember, just because there was excess advance payment of PTC doesn't mean there wasn't also PTC, in the end, but now that necessary information is suppressed from the return.

My software (UltraTax) also just removes the form from the return, unless forced. I agree the calculations may all still be available, but my main point was, if in the future all you have from the client or the IRS is a copy of the government copy of the tax return, with none of the non-required worksheets and statements, you will have a much harder time trying to put together all the missing pieces.

I'm not saying that what the IRS did was wrong, simply that it could have been accomplished much more simply, with much less collateral damage.

It is circular because the Additional Credit or the Repayment factor into the calculation. If you remove the repayment, it is no longer circular and the deduction would be (1) total premiums, minus (2) Advance payment. That is the amount that the taxpayer paid. The non-repayment won't change the amount that the taxpayer paid.

[Rapid Robert]

It is circular because the Additional Credit or the Repayment factor into the calculation. If you remove the repayment, it is no longer circular and the deduction would be (1) total premiums, minus (2) Advance payment. That is the amount that the taxpayer paid. The non-repayment won't change the amount that the taxpayer paid.

TGB, based on your previous posts on this topic, I have the impression you have rolled up your sleeves and peered into this part of the tax law we've all had to deal with since 2014 (or was it 2013?). So I take your comment with a lot of weight. (And I must bite my tongue whenever I'm tempted to say in general, "do we and our clients still not know about this law even after 7 years?)

I am not convinced that "If you remove the repayment, it is no longer circular". I say this after spending more time than I ever have before on Rev. Proc. 2014-41. I dusted off my TY2014 software and reproduced exactly Example 1 from the Rev Proc. It only took about ten minutes, using my template for MFJ with 2 kids. For the record, the federal poverty line for a family of four at that time was $23,550 not including Alaska & Hawaii. In this example, there is a payback limitation in place, which would seem to support your comment.

Then I made one change: I lowered the APTC to $9,000 from $10,500, and now the payback limitation does not apply.

In short, I don't think the "alternative calculation" in the Rev Proc can avoid the circular aspect even when there is no repayment of the excess advance payment of PTC. And let's face it, none of our software implements the iterative method.

"If you had non-marketplace insurance, you wouldn't need a special form to enter SEHI or Schedule A medical deductions. You just enter the expense paid. So if your software doesn't automatically take the information from the 1095-A, you just enter the amount paid as if you had non-Marketplace insurance."

Here is where I still see the requirement for information off the Form 8962. In my modified Example 1 from the Rev Proc, , the PTC goes from $6,740 to $6,846 and the SEHI deduction goes from $6,000 to $7,116. Yet by your statement immediately preceding, the SEHI deduction would only be $6,846?

I realize this is pretty obscure stuff for this time of year, I'm willing to resume the topic in some future if anyone cares to.

[TaxGuyBill]

Then I made one change: I lowered the APTC to $9,000 from $10,500, and now the payback limitation does not apply.

In my modified Example 1 from the Rev Proc, , the PTC goes from $6,740 to $6,846 and the SEHI deduction goes from $6,000 to $7,116. Yet by your statement immediately preceding, the SEHI deduction would only be $6,846?

No, the SEHI deduction would be $5000. Total premiums were $14,000 minus Advance payments of $9,000 equals $5000. That is how much they actually paid for health insurance.

In your example the SEHI deduction would be $7116* because the taxpayer paid $5000 out-of-pocket ($14,000 minus $9000 APTC) and also had a repayment of $2154, resulting in a total cost of $7154* (see footnote). So in that case, the taxpayer paid $7154 for health insurance. Change the repayment to $0 (based on the new law), and you are left with the taxpayer paying $5000 for health insurance. That would be the same even if the amount of the PTC changes.


*Actually the SEHI deduction should hypothetically be $7154, but the missing $38 is likely due to the Iterative Calculation not working out cleanly.


(Sorry if my font looks weird, the website was acting weird so I wrote this on Word and copy-and-pasted it here).