One of the provisions of the American Rescue Plan 2021 signed into law in March is that individuals and families that may owe excess health insurance subsidy will have the excess repayment suspended, as in, it does not have to be repaid to the federal government at this time. This provision only applies to federal excess Premium Tax Credit subsidy and not to any excess California Premium Assistance subsidy.
For individuals and families who may have already repaid the federal excess Premium Tax Credit, the IRS is advising not to file an amended return to recoup the money paid on their federal tax return. The reconciliation of the federal Premium Tax Credits occurs on form 8962. For California, the reconciliation is on FTB form 3849.
Excess Federal Health Insurance Subsidy Tax Credits Suspended for 2020 Repayment
Excess Advance Premium Tax Credits subsidies are triggered when the consumer received too much subsidy because the final Modified Adjusted Gross Income (MAGI) was higher than originally estimated on the Covered California or Healthcare.gov application. If the household has a final MAGI over 400 percent of the federal poverty level, all of the subsidies must be repaid. Many people who collected unemployment benefits during the covid-19 pandemic shut down will have incomes above what they originally estimated.
California offered health insurance subsidies to households whose income was above 400 percent of the federal poverty level. A household, with an estimated MAGI of 500 percent would have received a California subsidy, but no federal subsidy. If the final MAGI was under 400 percent, the consumer must repay the California subsidy, but picks up a larger federal subsidy.
The American Rescue Plan is federal legislation that applies to federal Premium Tax Credits. It does not apply to any repayment suspension or forgiveness of the California subsidy. One odd twist is that some consumers may have a higher MAGI, over 400 percent of FPL, and not have to repay the federal subsidy and also pick up the California Premium Assistance subsidy on their California income tax return.
The IRS has extended the deadline to file federal income tax returns. All of the provisions of the American Rescue Plan that affect income taxes are being reviewed by both the IRS and California’s Franchise Tax Board. None of the recent legislation has changed California’s individual shared responsibility penalty for not having health insurance.
Covered California: Suspend Federal APTC Reconciliation for Tax Year 2020
For tax year 2020, the American Rescue Plan suspends repayment of excess advance premium tax credit (APTC) owed to the IRS. Consumers would be eligible for additional APTC when they reconcile for tax year 2020 if they did not receive the maximum allowed APTC during the year. For more information as it becomes available, please visit the Claiming and Reconciling APTC and The American Rescue Plan Act of 2021 pages on the IRS.gov website.