IRS suspends requirement to repay excess advance payments of the 2020 Premium Tax Credit; those claiming net Premium Tax Credit must file Form 8962
WASHINGTON — 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).
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.
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.
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.
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.
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.
Please read this article from Forbes summarizing some of the legislation from the bill passed just last week. Despite being excluded from much needed relief in the first two rounds of stimulus payments Adult dependents such as college students will be eligible for the $1400 payment for individuals.
IRS UPDATE – 2020 Tax returns filed with unemployment benefits prior to the $10,200 exclusion will not be amended. The IRS has indicated it will refigure taxes on these returns and adjust the taxpayer’s account accordingly. The IRS will then send any refund amount directly to the taxpayer. IF you have a federal balance due and have not made payment yet, please contact us to get a revised balance due so that you won’t overpay and have to wait for a refund on that overpayment.
The IRS has stated that they will begin sending payments starting in May.
MA UPDATE – On April 1, 2021, Governor Baker signed legislation which allows taxpayers with household income up to 200% of the federal poverty level to deduct up to $10,200 of unemployment compensation from taxable income on their Massachusetts tax return. The deduction may be claimed by each eligible individual for tax years 2020 and 2021. Federal law allows a deduction of up to $10,200 if your federal adjusted gross income is less than $150,000. Since the MA income threshold is different from the federal income threshold, you may be eligible for a deduction on your federal tax return, but not on your MA tax return. If you have already filed your 2020 Massachusetts income tax return and you believe you are eligible for this deduction, there is no need to file an amended return. The Massachusetts Department of Revenue (DOR) will recalculate all tax returns that included unemployment income and will adjust your return if you are eligible. If your return is adjusted, your reported tax for 2020 will be reduced and you may be entitled to a refund. If you have no outstanding liabilities, DOR will mail the refund directly to you. DOR expects to begin issuing these refunds in mid-May and will provide updates about when you can expect to receive them in the FAQs on their website.
If you have not filed your 2020 Massachusetts income tax return yet, you should report the full amount of your unemployment income on your Massachusetts return using line 8a on resident tax returns (Form 1) or line 10a on nonresident/part-year resident tax returns (Form NR/PY). If you are eligible for a deduction, you should report the amount of the allowable deduction on Schedule Y, line 9.
You can find more information about the new deduction in the FAQs on DOR’s website. If you have any other questions or concerns, please contact DOR at (617) 887-6367 or online through your MassTaxConnect account.
Read the full news release here. Key Highlights include:
Economic Impact Payments are an advance payment of the Recovery Rebate Credit. Important updates include the Recovery Rebate Credit worksheet on page 59 of the 1040/1040-SR instructions. Anyone who didn’t receive the full amount of both Economic Impact Payments should include the amounts they received, before any offsets, when they file. Anyone who received the full amount for both Economic Impact Payments should not include any information about the advance payments when they file their tax return.
Eligible individuals who did not receive an Economic Impact Payment – either the first or the second payment – can claim a Recovery Rebate Credit when they file their 2020 taxes this year. The IRS urges taxpayers who didn’t receive an advance payment to review the eligibility criteria when they file their 2020 taxes; many people, including recent college graduates, may be eligible for a credit.
Eligible individuals who didn’t receive the full amount of both Economic Impact Payments should claim the missing amount as a credit. Anyone who did receive the full amount for both Economic Impact Payments should not include any information about their payment when they file their taxes – they’ve already received the full amount of the Recovery Rebate Credit as advance payments.
Also new this year is the option to use prior year income amounts when computing the Earned Income Tax Credit and the Additional Child Tax Credit.
The IRS has not yet announced a start date for the 2021 filing season
The IRS is now offering the IP Pin to help reduce identity theft. This six digit number is assigned to eligible taxpayers who volunteer to pass their rigorous identity verification process. For more information and to apply for your pin number online please visit https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin