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How the COVID relief law will rescue marketplace plan buyers

The 'rescue' in the American Rescue Plan Act includes saving policyholders from repayment of thousands in excess premium subsidies for the 2020 tax year

The American Rescue Plan Act includes a one-time provision that will rescue marketplace plan buyers from repayment of thousands of dollars in excess insurance premium subsidies for the 2020 tax year. | Image: onephoto / stock.adobe.com

Reviewed by our health policy panel.

EDIT, April 9, 2021: The IRS has issued guidance clarifying how taxpayers should proceed on this issue. People who would have had to repay some or all of their advance premium tax credit from 2020 can simply skip Form 8962, and do not need to reconcile their advance premium tax credit. People who are owed additional premium tax credit (ie, the amount that was paid on their behalf in 2020 ended up being too small) can still claim it by using Form 8962, just as they normally would. People who have already filed a 2020 tax return and repaid excess advance premium tax credits do not need to file an amended return. Instead, the IRS will simply refund the money to them automatically.

Stressed about having to pay back some or all of the premium subsidy that was paid on your behalf last year? You’re in luck: Under the American Rescue Plan Act (H.R. 1319) – passed by Congress on March 10 and expected to be signed into law by President Biden on March 12 – excess premium subsidies for 2020 do not have to be repaid to the Internal Revenue Service.

This is a one-time provision that’s being granted as part of the federal government’s massive COVID relief measure – which is also significantly increasing premiums subsidies for 2021 and 2022 – and it will come as a great relief to many of the Americans who enrolled in individual and family health plans through the health insurance marketplace /exchange last year.

Although the Affordable Care Act’s premium tax credits (premium subsidies) make health insurance affordable for millions of people, they can be a bit complicated. Unlike other tax credits, they’re available to be used up front, paid directly to your health insurance company throughout the year. (This is called APTC – advance premium tax credit – since it’s paid in advance.)

You can always opt to pay full price for a plan purchased through the exchange and then claim the whole premium tax credit on your tax return, but hardly anyone does that. Instead, most people provide the marketplace with a projection of what they think their income will be for the year, and their estimated premium tax credit is then sent to their insurer throughout the year, reducing the amount they have to pay in premiums.

The catch is that it all has to be reconciled with the IRS when policyholders file their tax returns. Depending on the circumstances, the IRS might give you additional money at that point (if your subsidy was too small), or they might make you repay some or all of the subsidy that was paid on your behalf during the year.

How the law will head off a tax-time subsidy repayment crisis

This issue was shaping up to be particularly significant for the 2020 tax year. The combination of additional federal unemployment compensation and erratic employment made it more difficult than usual for people to accurately project their income for 2020. And, as is always the case, folks whose income ended up over 400% of the federal poverty level were facing the prospect of paying back their entire premium subsidy to the IRS – repayments which could be in the thousands or even tens of thousands of dollars, depending on the circumstances.

An income boost that pushed a household over the 400% federal poverty level threshold might have happened because a person received more unemployment benefits than they expected, or because they got a new job later in the year that put their total income above the subsidy eligibility threshold. In normal years, this would mean the entire subsidy has to be repaid, regardless of how low policyholders’ income was during the months they were receiving a premium subsidy through the marketplace.

And even for people whose income stayed under 400 percent of the poverty level, there was the possibility of having to repay as much as $2,700 in excess premium subsidies, depending on the actual income and tax filing status.

Provision applies only to the 2020 tax year

But thanks to the American Rescue Plan Act, no marketplace plan buyer will have to worry about repaying excess premium subsidies for 2020. If your subsidy amount was too small, you can still claim the additional amount that you’re owed when you file your taxes. But if your subsidy ended up being too large – even if your income ended up exceeding 400% of the poverty level – you won’t owe any of it back to the IRS.

This is a one-time provision for the 2020 tax year only. So it’s still important to project your income for this year as accurately as possible, and keep the exchange updated if your income changes later this year.

How will the provision apply if you’ve already filed your taxes?

EDIT: The IRS issued guidance in April 2021, clarifying that people in this situation do not need to file amended returns. Instead, the IRS will simply refund the money to them automatically. 

It’s not yet clear exactly how the IRS will handle excess premium tax credits for people who filed their 2020 tax returns earlier this year and already repaid some or all of their premium tax credit for 2020. Amended tax returns can always be used to make a change, although the IRS has advised that tax filers hold off on this for the time being and await further instructions from the IRS.

It’s also not yet clear how quickly tax software will reflect the fact that excess premium subsidies for 2020 do not have to be repaid. Karen Pollitz, a Senior Fellow at Kaiser Family Foundation, notes that “the forms and tax software already provide for repayment, so it will take a while to straighten all this out. And it will probably be very confusing for people who file their tax returns over the next four to five weeks.”

You’ll want to check with your tax preparer or call your tax software company to see if they have any guidance for you. The tax filing deadline has been extended until May 17, 2021, but it’s also possible to request an extension if you need it, giving you until October 15 to file your return.


Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

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Thomas Lundy
Thomas Lundy
29 days ago

I sure hope I won’t have to pay back the Premium Tax credits. We sold our rental home and will definitely be above the 400FPL. Will the way the income was earned affect the waived subsidy?

Louise Norris
Editor
29 days ago
Reply to  Thomas Lundy

As long as this was in 2020, you won’t have to repay excess premium subsidies, regardless of why your income ended up going above 400% of the poverty level.
In 2021 and future years, there’s no provision to waive excess subsidy repayments, but there’s also no subsidy cliff in 2021 and 2022: https://www.healthinsurance.org/blog/2021/03/05/how-the-american-rescue-plan-act-would-boost-marketplace-premium-subsidies/ That means fewer people will be subject to excess subsidy repayments (or subject to a smaller repayment) for this year and next year, even if their income ends up being higher than they anticipated.

Ihan
Ihan
26 days ago
Reply to  Thomas Lundy

Do You Know that how long, IRS will take to take action and also should I file my tax yet? and Pay the Premium Tax credit?

Louise Norris
Editor
26 days ago
Reply to  Ihan

The IRS is working on this, and they’ve said that they’ll put out more information as it becomes available: https://www.irs.gov/newsroom/irs-statement-american-rescue-plan-act-of-2021

Ihan
Ihan
26 days ago
Reply to  Thomas Lundy

Also, Is it for APTC too?

Louise Norris
Editor
26 days ago
Reply to  Ihan

Do you mean APTC for this year? That’s also affected by the American Rescue Plan: https://www.healthinsurance.org/blog/2021/03/05/how-the-american-rescue-plan-act-would-boost-marketplace-premium-subsidies/
CMS has said that the new APTC amounts will be available on HealthCare.gov as of April 1 (the 15 state-based marketplaces are working on this, but should have it available soon as well). After that, enrollees can log back into their accounts to activate the new subsidy amounts: https://www.cms.gov/newsroom/fact-sheets/american-rescue-plan-and-marketplace

Ihan
Ihan
26 days ago
Reply to  Louise Norris

I mean for the 2020 tax year, because I have lot of advance premium tax credit that says i have to pay back to ira

Louise Norris
Editor
23 days ago
Reply to  Ihan

For 2020, nobody will have to pay back excess premium tax credits (excess APTC) that were paid on their behalf during the year. But the IRS is still working with tax software companies to get this straightened out, as the systems have all been programmed to show that people have to repay those excess subsidies. The extension of the tax filing deadline to May 17 should help to give people some breathing room on this, while we wait for the tax software to catch up with the law.

Thomas Lane
Thomas Lane
26 days ago

Thanks for this article. You just saved my client a lot headache and agony. She was looking at repaying back $8,200. Great job on pick up on this

Sharon P
Sharon P
11 days ago
Reply to  Thomas Lane

I may need you to be my lawyer…lol. I had market place coverage and didnt know til i got a 1095 a…

Dion Blundell
Dion Blundell
24 days ago

Will CA state taxes follow the feds in waiving repayment of excess PTC? Currently, TurboTax shows that I must repay the $800 limit for federal AND another $800 for CA. This seems like duplicate repayment to me, but TurboTax insists it’s correct. Might the CA repayment be forgiven too?

Louise Norris
Editor
23 days ago
Reply to  Dion Blundell

California provides its own premium tax credits, in addition to what the federal government provides. You do not have to repay anything to the IRS, but TurboTax is still working to update their systems to reflect this.
I have not heard anything from California, however, about whether they might take similar action. If they do not, you would still have to repay any excess premium subsidy that the state of California paid on you behalf.

Dion Blundell
Dion Blundell
22 days ago
Reply to  Louise Norris

How can I tell how much subsidy, if any, I received from CA? I have no documentation from CA, only the Federal 1095A. The calculations in TurboTax for CA seem to reduplicate the Federal ones wrongly, i.e., I’m repaying the same excess subsidy twice.

Peggy
Peggy
20 days ago
Reply to  Dion Blundell

You are not paying twice, they just use the same numbers to calculate. The percentage of tax is different, as are the amounts you pay the state. You put your income in there, it’s on both state and federal. They are treated completely differently. I’m not sure how else to explain it. I understand why you might think that, but that’s just not the case. <happy emoji>

Louise Norris
Editor
19 days ago
Reply to  Dion Blundell

When you go into your CoveredCA account, are you able to see a breakdown of the subsidy amounts? CoveredCA’s plan comparison tool does break it down in terms of how much of the subsidy is federal and how much is state — it shows those numbers if you hover over the total subsidy amount (on the plan comparison page where it shows each available plan and the total subsidy amount).
CoveredCA does have a limit on excess subsidy repayments: https://www.coveredca.com/learning-center/tax-forms-and-filing/financial-help-repayment-limits/ (assuming they do make people repay excess state subsidy amounts for 2020)

Dion Blundell
Dion Blundell
19 days ago
Reply to  Louise Norris

Thanks for all the prompt help here! I didn’t even know that CA offered an additional PTC, and didn’t receive one. I had made an ignorant mistake in TurboTax by entering my Fed 1095-A numbers into the CA 3895 form (they look almost identical). Thus I was repaying excess subsidy twice. Once Intuit implements their fix for IRS repayment forgiveness, I won’t have to pay any penalty, and it looks as if I’ll even receive a tiny subsidy from CA instead of an $800 tax bill! Thanks again!

Mike
Mike
24 days ago

I had Marketplace and employer provided healthcare at the same time for 3 months. Will I have to repay the APTC for those 3 months?

Louise Norris
Editor
23 days ago
Reply to  Mike

It doesn’t matter why the excess premium tax credits would otherwise be owed – amounts that would have to be repaid on Line 29 of Form 8962 do not have to be repaid for 2020, thanks to the American Rescue Plan. But the IRS is still sorting out the details as to how this will work in practice and how to address this issue for people who already filed and repaid excess premium subsidies for 2020: https://www.irs.gov/affordable-care-act/individuals-and-families/questions-and-answers-on-the-premium-tax-credit

Leslie
Leslie
23 days ago

Anyone know why I am looking at having to pay back the state, CA, not fed, those subsidies.???

Louise Norris
Editor
23 days ago
Reply to  Leslie

As of 2020, California started offering its own state-funded premium subsidies, in addition to the subsidies that the federal government provides: https://www.healthinsurance.org/california-state-health-insurance-exchange/#subsidyandmandate
Just like the federal subsidies, California’s subsidies have to be reconciled at tax time (on the state tax return, whereas the federal subsidies get reconciled on Form 8962, which goes along with your 1040). I have not heard anything about California offering the sort of repayment amnesty that the federal government is offering for 2020, but you might want to reach out to the state tax department or a tax advisor to see if there’s any information about this.

Thoams Walton
Thoams Walton
19 days ago

Married filing together, 2 adults and 2 kids and the 2019 income were 60K. We got ACA and the tax filing was fine. But I almost got a heart attack as our 2020 AGI is 106 and according to HR Block and Turbo Tax, I have to pay back all the $12450 in the subsidy we received. According to this article, I think I don’t have to pay anything. However, why the Turbo Tax calculation is still showing that I have to pay this amount? Are they going to change it soon?

Last edited 19 days ago by Thoams Walton
Louise Norris
Editor
19 days ago
Reply to  Thoams Walton

The IRS is working with tax software companies to get this updated, but we haven’t yet seen a timeframe for when this will happen. For now, the IRS is saying they will “provide more details soon” https://www.irs.gov/affordable-care-act/individuals-and-families/questions-and-answers-on-the-premium-tax-credit
Turbo Tax might be able to give you an idea of when they’ll have this adjusted, if you call them directly. Also, the IRS has extended the tax filing deadline to May 17, which helps to provide a bit more wiggle room on this. (a lot of states have also followed suit: https://twocents.lifehacker.com/which-states-have-extended-their-tax-deadlines-1846511631 )

Patricia Valencis
Patricia Valencis
17 days ago

Does the unemployment exclusion of $10200.00 need to be added back into your income for line 2a of form 8962

Louise Norris
Editor
17 days ago

Excess premium tax credits do not have to be repaid for 2020, regardless of the circumstances. But this is an important question in terms of reconciling premium tax credits and potentially claiming an *additional* amount that’s owed to you. The IRS page for Form 8962 still indicates that they’re working through the details: https://www.irs.gov/forms-pubs/about-form-8962
I would advise that you consult with a tax professional to see if they have any insight on this, and stay tuned to that IRS page for further information about how Form 8962 will be processed for 2020 tax returns.

Amber Witter
Amber Witter
14 days ago

Thank you so much for your timely responses in this comment section. This is the best article on this topic which I could find online, still waiting on the tax software updates… Please keep us updated on when these updates become available.

Wadé Williams
Wadé Williams
12 days ago

Best article so far on this issue. I noticed that most tax softwares have not been updated to reflect this change. This provision in The American Rescue Plan is a game changer for many essential workers who ended up owing thousands in advance premium tax credit to the IRS.

Louise Norris
Editor
12 days ago
Reply to  Wadé Williams

Thank you, glad it was helpful! Yes, the tax software companies have a lot of updating to do as a result of the ARP, and unfortunately, it comes at their busiest time of the year. My understanding is that they’re all working with the IRS to get the changes implemented as soon as possible.

Jay
Jay
11 days ago

I’ve had this article bookmarked for more than two weeks, as it’s been really helpful. Related to what others here have commented, Intuit says they’ve completed all TurboTax updates for ARP and that the forgiveness on PTC for 2020 only pertains to people up to 400% FPL. If I “fake” a lower income up to 400% FPL, there’s no clawback, which shows that Intuit has implemented the tax change. A mock return with FreeTaxUSA reveals same. I reached someone at Intuit yesterday who communicated with their tax experts and they say that they don’t foresee any future changes, but if they got the policy wrong, they would appreciate notification at security.intuit.com. Louise, any further insight into this situation? (I also Tweeted you before seeing this comment section.)

Louise Norris
Editor
11 days ago
Reply to  Jay

I responded on Twitter, but wanted to reply here as well in case other readers have a similar experience. I believe TurboTax is incorrect in this situation, and various other health policy experts agree. For example, see Health Affairs, here: https://www.healthaffairs.org/do/10.1377/hblog20210311.725837/full/

Section 9662 of the American Rescue Plan adjusts Section 36B(f)(2) for 2020 only. It states that Subparagraph A of Section 36B(f)(2) shall not apply for 2020. Subparagraph A is the provision that requires excess premium tax credits (at any income level) to be repaid to the IRS, either in full or under the terms of the repayment limits that are described in 36(B)(f)(2)(B)(ii). So for 2020 only, the entire section about repaying excess premium tax credits is essentially moot.

The IRS has said that they’re working on this. For the time being, they’re advising people to NOT file an amended return if they already filed their 2020 return and repaid some or all of their premium tax credit: https://www.irs.gov/affordable-care-act/individuals-and-families/the-premium-tax-credit-the-basics As of late March, the IRS indicated in a webinar that they are working on a more simplified way for people in that situation to recoup the money they repaid to the IRS earlier in the year, but the details are not yet available.

John Moran
John Moran
8 days ago
Reply to  Jay

I believe Intuit still has not fully fixed their APTC repayment calcs as of today. I am at 203%, and Turbotax Home and Business is still claiming I need to repay $800. I can’t seem to find how or where I can report this error to them.

Louise Norris
Editor
7 days ago
Reply to  John Moran

TurboTax had a blog post last month detailing the ARP’s provisions, and it included the fact that repayment of excess premium tax credits for 2020 would be waived: https://blog.turbotax.intuit.com/tax-news/american-rescue-plan-what-does-it-mean-for-you-and-a-third-stimulus-check-49041/ So they’re aware of it, but I’m not sure how long it will take them to get it sorted out. If they have a customer service chat/email/phone feature, you may be able to contact them directly. Hopefully the one-month extension that the IRS has granted for filing 2020 tax returns will give all of the tax software companies enough time to get this straightened out.

Sharon P
Sharon P
11 days ago

My question is i didnt know i was enrolled in marketplace. We were using my husbands insurance. Will i have to repay because of the double coverage i had no knowledge of?

Louise Norris
Editor
11 days ago
Reply to  Sharon P

That would normally result in having to repay the premium subsidy, but the American Rescue Plan has eliminated excess subsidy repayments for 2020. The IRS is still sorting out the details. Publication 974 addresses the specific rules around premium tax credits, but the IRS currently has a placeholder page there, as they’re updating that publication to include the ARP’s provisions: https://www.irs.gov/pub/irs-pdf/p974.pdf You might also want to keep an eye on the page about Form 8962, as that will need an overhaul for 2020 as well: https://www.irs.gov/forms-pubs/about-form-8962

Sharon P
Sharon P
11 days ago

Also i had my adult son who was 22 on the employer plan and marketplace plan. He did not receive a letter for an 8962 or a 1095a. I put on my 1095a that i would be responsible for 100%. Would he still need to send in a 1095a and an 8962? TIA.

Louise Norris
Editor
11 days ago
Reply to  Sharon P

The IRS is still sorting out how they’re going to handle this. Form 1095A is just for your records; it does not have to be sent to the IRS (the marketplace sends them a copy). If your son is not your tax dependent, you’d each file Form 8962, but you could use the scenario described in “allocation situation 4” in the instructions for Form 8962: https://www.irs.gov/instructions/i8962#idm140230409214080 (ie, one taxpayer takes 100% of the premium tax credit, the other takes 0%).
But again, since excess premium subsidies do not need to be repaid for 2020, the IRS is still working out the details in terms of how Form 8962 needs to be adjusted. Fortunately, the federal tax filing deadline has been extended to May 17, and almost all of the states have followed suit.

Sharon P
Sharon P
9 days ago
Reply to  Louise Norris

Thank you. Talking to you gives me hope. The funny thing is the irs has no knowledge of the 2020 forgiveness of the aptc. They should have told something by now atleast.

Pat Terkelson
Pat Terkelson
11 days ago

Pat Terkelson. my 52 year old daughter had no income in 2020 but she got the forms from the market place indicating if she got these forms she must file a tax return. So no income and she has been paying her premium with her stimulus money. What does she need to do?

Louise Norris
Editor
10 days ago
Reply to  Pat Terkelson

Did she have an income when she applied for her 2020 coverage, and was she approved for a premium tax credit based on that income? If so, the 1095-A that the marketplace sent to her would reflect that – it should show the amount of premium tax credit that was paid on her behalf. If she ended up with no income at all, she wouldn’t have to repay the premium tax credit even in a normal year, as described here: https://www.healthinsurance.org/faqs/if-my-income-is-less-than-expected-this-year-i-might-be-eligible-for-medicaid-what-can-i-do-during-open-enrollment-to-cover-my-bases/
For 2020, however, nobody has to repay excess premium subsidies. But the IRS is still sorting out the details on this, so we’re not yet sure how they’ll handle it. If she got a Form 1095-A that shows a premium tax credit was paid on her behalf, the normal rules say that she has to file Form 8962 to reconcile that tax credit. But the IRS might change that for 2020, in the case of people who aren’t owed additional premium tax credits.

Oneylis
Oneylis
8 days ago

If I do not have to repay the premium excess, and I already filed taxes; would that mean I will be refunded with any amount of money? Thank you.

Louise Norris
Editor
8 days ago
Reply to  Oneylis

Yes. But the IRS is working on a more simplified approach than an amended return, and they’re advising people who have already filed and repaid excess premium tax credits to wait for now, and NOT file an amended return in order to get the money refunded: https://www.irs.gov/affordable-care-act/individuals-and-families/the-premium-tax-credit-the-basics

Bruce F
Bruce F
3 days ago

As always, those who do the right thing, play by the rules and do the correct math, get screwed. Where is the bonus for those of us that worked our entire lives, saved for our retirement and provided for our families aren’t included in the bribes. What kind of message does this send to those growing up to compete in the job market? How will anyone develop a work ethic when all they get for it is being hosed by paying for those that will not work? Who will pay for the freebies when everyone learns they don’t have to work and they’ll still be taken care of by Uncle Sugar.

Louise Norris
Editor
3 days ago
Reply to  Bruce F

In the case of this particular provision in the American Rescue Plan, it’s actually the exact opposite of what you’re describing. It’s designed to protect people who ended up earning more than they thought they would in 2020. Perhaps they lost a job (and with it, their health insurance) when the pandemic began, and enrolled in a marketplace health insurance plan in an effort to be responsible and maintain health coverage. They predicted their total annual income as best they could at that point, but the year was only a few months old at that point, and nobody really knew what the rest of 2020 would bring.

Perhaps that person ended up being rehired in the fall, either by their old employer or a new one — demonstrating the work ethic you like to see. But if the income from that job ended up pushing them above 400% of the poverty level for the whole year, they would have been on the hook to repay the entire premium subsidy from the months that they were between jobs (whereas if they had not returned to work, they might not have earned enough to push them over that limit, and would not have had to repay the full subsidy).

For people with variable incomes, accurately projecting the full year’s income can be challenging in the best of times. In 2020, it was virtually impossible. So this provision in the American Rescue Plan ensures that people are not penalized for having been able to find work again later in 2020.

During your working years, did you receive employer-sponsored health coverage? If so, you benefited greatly from the tax exclusion of that coverage, which costs the federal government far more than the premium tax credits that are provided for people who buy their own health insurance: https://www.cbo.gov/publication/53826

If you purchased your own coverage in the pre-ACA days, it’s true that you didn’t receive any assistance with the premiums and your premiums may not have been tax deductible. But health care costs have increased greatly over the last few decades, pushing health insurance premiums into an unaffordable range for most people. For people who receive employer-sponsored coverage, employers pay the majority of the premiums (and again, it’s all pre-tax): https://files.kff.org/attachment/Report-Employer-Health-Benefits-2020-Annual-Survey.pdf For people who buy their own coverage, premium tax credits level the playing field somewhat, making coverage roughly as affordable as employer-sponsored coverage is after the generous employer subsidies and tax breaks.

Jim Lefemine
Jim Lefemine
3 days ago

OK I get that the ARP Act includes a no pay back provision for 2020 tax year, but how do you process this forgiveness within your 1040

Louise Norris
Editor
3 days ago
Reply to  Jim Lefemine

Excess premium tax credits are reported on Line 29 of Form 8962, and normally have to be repaid to the IRS when you file your taxes. As a result of the ARP, any amount on Line 29 of Form 8962 does not have to be repaid, but it’s taking a while for tax software systems to sort this out. The IRS is still telling people to hang tight and wait for more information if they’ve already filed and repaid excess premium tax credits: https://www.irs.gov/affordable-care-act/individuals-and-families/the-premium-tax-credit-the-basics
If you’re using an accountant, they should be fairly well versed in this by now. If you’re using tax prep software, you may be able to contact the customer service number to see if they have any advice, assuming their system is still (erroneously) showing that you do need to repay an amount for Line 29 of Form 8962.
Fortunately, the tax filing deadline has been extended through May 17, giving tax filers (and tax software companies) a little extra breathing room to get this sorted out.

Amber Witter
Amber Witter
2 days ago

Anyone interested-HR Block just updated their tax software to account for this.

Louise Norris
Editor
1 day ago
Reply to  Amber Witter

Thanks, Amber. That’s great news!

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