A recent study by the Treasury Inspector General for Tax Administration (TIGTA) for the 2014 tax filing season estimated that $1.4 billion in unqualified Advance Premium Tax Credits were made. In theory, taxpayers are required to repay these tax credit overpayments as they are not entitled to them. However, $434.2 million of the excess government pay outs will not be required to be repaid as they exceed a calculated advance tax credit repayment limit.
What this means
- TIGTA analysis of individual tax returns processed as of May 7, 2015 showed that the verification process of Premium Tax Credit claims needs improvement.
- The government determined that requiring repayment of the excess credit payments would create a hardship for many taxpayers.
- The reasons for overpayment are fraud and taxpayer overpayment requests due to faulty information.
- Many taxpayers using the Advanced Premium Credit faced a surprising tax bill when they filed their 2014 tax return. The same thing could occur in 2015.
What you should know
Impacted? Know your repayment requirement. Whether you are required to repay excess Advanced Premium Credit payments depends on your income. Most must repay the excess amount as calculated on IRS Form 8962. If a repayment claim is made by the IRS, please call to review your situation.
Potential tax risk with advance premium credit payments. Be careful if you use the Health Care Marketplace to purchase health insurance. Remember requests for the Advance Premium Health Credit are paid by the government directly to your health insurance provider. If your credit payments are too high, you will need to repay the excess when filing your tax return.
Consider understating your Advanced Credit payment. If you want to ensure you are not required to return part of the Premium Credit when filing your tax return, consider reserving some of the credit for when you file your tax return.
Keep your information up-to-date. As your situation changes, update your health insurance information on the Marketplace. Increases in pay, changes in the number of dependents, and changes in marital status are common reasons for an over payment of the Premium Health Credit.
Expect changes. The TIGTA analysis shows the government gave away over $400 million to those not entitled to receive the funds. They acknowledge they are not attempting to recover these overpayments because of the financial hardship it would cause. This is stimulating changes in the Premium Credit process.