The American Rescue Plan Act of 2021 added IRC §36B(f)(2)(B)(iii) that provided that taxpayers are not required in tax year 2020 to repay advance premium tax credits received in excess of the premium tax credit they actually qualified for. In IR-2021-84[1] the IRS described the procedures that taxpayers will use to deal with this retroactive change in the law, one enacted after some taxpayers had filed 2020 tax returns paying back the excess advance premium tax credit.

As the news release described the provision:

The American Rescue Plan Act of 2021 suspends the requirement that taxpayers increase their tax liability by all or a portion of their excess advance payments of the Premium Tax Credit (excess APTC) for tax year 2020. A taxpayer’s excess APTC is the amount by which the taxpayer’s advance payments of the Premium Tax Credit (APTC) exceed his or her Premium Tax Credit (PTC).[2]

No Need to File Form 8962 if the Form Shows Excess Advance Premium Tax Credit

Form 8962, Premium Tax Credit, serves two purposes on the tax return of a taxpayer who received health insurance through a Health Insurance Marketplace:

The form determines how much premium tax credit the taxpayer qualifies for based on their income and
It determines if the taxpayer is due a credit against taxes in excess of the advance premium credits received or if the taxpayer must repay amounts when the taxpayer’s actual premium tax credit is less than the amount of any advance credit the taxpayer was paid.

As the release notes:

Eligible taxpayers may claim a PTC for health insurance coverage in a qualified health plan purchased through a Health Insurance Marketplace. Taxpayers use Form 8962, Premium Tax Credit to figure the amount of their PTC and reconcile it with their APTC. This computation lets taxpayers know whether they must increase their tax liability by all or a portion of their excess APTC, called an excess advance Premium Tax Credit repayment, or may claim a net PTC.

Taxpayers can check with their tax professional or use tax software to figure the amount of allowable PTC and reconcile it with APTC received using the information from Form 1095-A, Health Insurance Marketplace Statement.[3]

The IRS first deals with taxpayers whose 2020 returns have not yet been filed. First, the IRS provides that if those taxpayers find that Form 8962 shows a payment is due, the taxpayers are not to file that form with their tax return:

The Internal Revenue Service announced today that taxpayers with excess APTC for 2020 are not required to file Form 8962, Premium Tax Credit, or report an excess advance Premium Tax Credit repayment on their 2020 Form 1040 or Form 1040-SR, Schedule 2, Line 2, when they file.[4]

The IRS provides some additional details in an additional fact sheet issued at the same time as the release:

If taxpayers have excess APTC for 2020: They should not file Form 8962 when they file their 2020 tax return and they should not include an amount on Form 1040 or Form 1040-SR. Schedule 2, Line 2. The IRS will process that tax return without Form 8962 and will not add any excess advance Premium Tax Credit repayment amount to the 2020 tax liability. The taxpayer should disregard notices from the IRS asking for a missing Form 8962 if they have excess APTC for tax year 2020.[5]

However, taxpayers who are claiming a net premium tax credit will still need to attach Form 8962 to their returns:

The process remains unchanged for taxpayers claiming a net PTC for 2020. They must file Form 8962 when they file their 2020 tax return. See the Instructions for Form 8962 for more information. Taxpayers claiming a net PTC should respond to an IRS notice asking for more information to finish processing their tax return.[6]

The Fact Sheet provides the following more specific guidance in this case:

If individuals are claiming net PTC on Form 1040 or 1040-SR, Schedule 3, Line 8: They must file Form 8962 with their return and report net PTC on Line 26. Taxpayers are eligible to claim net PTC if:

·hey are allowed a PTC for 2020 but were not eligible for, or chose not to receive the benefit of, APTC at enrollment in Marketplace coverage for 2020, or
They received the benefit of APTC for 2020 but their PTC allowed for 2020 is more than the APTC paid on their behalf for 2020.

The IRS needs the information on Form 8962 to process the tax return for taxpayers claiming a net PTC. If they have net PTC and receive a letter asking for more information, they should respond to the notice so that the IRS can finish processing their 2020 tax return and, if applicable, issue any refund due.[7]

Taxpayers Who Previously Filed Their Return

The IRS release also deals with the case where a taxpayer had already filed a return showing a payment due for the advance premium tax credit. As with the unemployment exclusion, the IRS is asking those who believe they are due a refund due to this provision not to file an amended return, as the IRS plans to automatically issue refunds to those taxpayers:

Taxpayers who have already filed their 2020 tax return and who have excess APTC for 2020 do not need to file an amended tax return or contact the IRS. The IRS will reduce the excess APTC repayment amount to zero with no further action needed by the taxpayer. The IRS will reimburse people who have already repaid any excess advance Premium Tax Credit on their 2020 tax return. Taxpayers who received a letter about a missing Form 8962 should disregard the letter if they have excess APTC for 2020. The IRS will process tax returns without Form 8962 for tax year 2020 by reducing the excess advance premium tax credit repayment amount to zero.

Again, IRS is taking steps to reimburse people who filed Form 8962, reported, and paid an excess advance Premium Tax Credit repayment amount with their 2020 tax return before the recent legislative changes were made. Taxpayers in this situation should not file an amended return solely to get a refund of this amount. The IRS will provide more details on IRS.gov. There is no need to file an amended tax return or contact the IRS.[8]

The Fact Sheet provides guidance on four different situations that those who have already filed may find themselves in:

Taxpayers who have already filed their 2020 tax return and who have excess APTC do not need to file an amended tax return or contact the IRS. Instead, taxpayers should follow the below procedures:

If a taxpayer has excess APTC, filed their return with Form 8962 and it’s still being processed: The IRS will reduce the excess advance Premium Tax Credit repayment amount the taxpayer reported on their 2020 Form 1040 or Form 1040-SR, Schedule 2, Line 2, and Line 29 of Form 8962 to zero and process their return. There is no need to contact the IRS. If a taxpayer receives a IRS letter about excess APTC for tax year 2020, they should disregard the letter.

If a taxpayer has excess APTC and filed their return without Form 8962: The individual might have received a letter from the IRS. If they have excess APTC for 2020, they should disregard the IRS letter asking for a missing Form 8962. The IRS will continue processing the 2020 return without Form 8962. If the taxpayer didn’t get a letter about a missing Form 8962, the IRS will process the 2020 without Form 8962. If they didn’t file a Form 8962 but still reported an excess advance Premium Tax Credit repayment amount on their return, the IRS will reduce it to zero and process the return. There is no need to contact the IRS.

If a taxpayer paid an excess APTC repayment amount when they filed their return with Form 8962: Individuals in this situation should not file an amended tax return to get a refund of this amount. The IRS is taking steps to reimburse taxpayers who filed Form 8962, reported, and paid an excess advance Premium Tax Credit repayment amount with their 2020 tax return before the recent changes made by the American Rescue Plan Act of 2021. Individuals in this situation should not file an amended return solely to get a refund of this amount. The IRS will provide more details soon.

If a taxpayer is claiming net PTC and filed their return without Form 8962: They will receive a letter from the IRS asking for a completed Form 8962. Taxpayers claiming a net PTC must file Form 8962 when they file their 2020 tax return. If they filed a 2020 tax return and claimed a net PTC but did not file Form 8962 with their return, they should respond to the IRS notice they received or will soon receive. The IRS may need more information to process their 2020 return if there’s an amount claimed on Form 1040 or 1040-SR, Schedule 3, Line 8. Individuals are eligible for net PTC for 2020 if their PTC for 2020 is more than the APTC paid for health insurance coverage and the coverage of their family members for 2020, or if they are allowed a PTC for 2020 and were not eligible for APTC, or chose not to receive the benefit of APTC, at enrollment in their health plan for 2020.

If individuals have net PTC for 2020, they should review and respond to the IRS notice so that the IRS can finish processing their 2020 tax return and, if applicable, issue any refund due.

No Impact on Other Tax Years

The release also reminds taxpayers this law change does not have any impact on other tax years:

As a reminder, this change applies only to reconciling tax year 2020 APTC. Taxpayers who received the benefit of APTC prior to 2020 must file Form 8962 to reconcile their APTC and PTC for the pre-2020 year when they file their federal income tax return even if they otherwise are not required to file a tax return for that year. The IRS continues to process prior year tax returns and correspond for missing information. If the IRS sends a letter about a 2019 Form 8962, we need more information from the taxpayer to finish processing their tax return. Taxpayers should respond to the letter so that the IRS can finish processing the tax return and, if applicable, issue any refund the taxpayer may be due.[9]

[1] “IRS suspends requirement to repay excess advance payments of the 2020 Premium Tax Credit; those claiming net Premium Tax Credit must file Form 8962,” IR-2021-84, April 9, 2021, https://www.irs.gov/newsroom/irs-suspends-requirement-to-repay-excess-advance-payments-of-the-2020-premium-tax-credit-those-claiming-net-premium-tax-credit-must-file-form-8962 (retrieved April 9, 2021)

[2] “IRS suspends requirement to repay excess advance payments of the 2020 Premium Tax Credit; those claiming net Premium Tax Credit must file Form 8962,” IR-2021-84, April 9, 2021

[3] “IRS suspends requirement to repay excess advance payments of the 2020 Premium Tax Credit; those claiming net Premium Tax Credit must file Form 8962,” IR-2021-84, April 9, 2021

[4] “IRS suspends requirement to repay excess advance payments of the 2020 Premium Tax Credit; those claiming net Premium Tax Credit must file Form 8962,” IR-2021-84, April 9, 2021

[5] “More details about changes for taxpayers who received advance payments of the 2020 Premium Tax Credit,” FS-2021-08, April 2021, https://www.irs.gov/newsroom/more-details-about-changes-for-taxpayers-who-received-advance-payments-of-the-2020-premium-tax-credit (retrieved April 9, 2021)

[6] “IRS suspends requirement to repay excess advance payments of the 2020 Premium Tax Credit; those claiming net Premium Tax Credit must file Form 8962,” IR-2021-84, April 9, 2021

[7] “More details about changes for taxpayers who received advance payments of the 2020 Premium Tax Credit,” FS-2021-08, April 2021

[8] “IRS suspends requirement to repay excess advance payments of the 2020 Premium Tax Credit; those claiming net Premium Tax Credit must file Form 8962,” IR-2021-84, April 9, 2021

[9] “IRS suspends requirement to repay excess advance payments of the 2020 Premium Tax Credit; those claiming net Premium Tax Credit must file Form 8962,” IR-2021-84, April 9, 2021