Friday, March 26, 2021

An American Rescue Plan benefit you'll have to wait for

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UPDATE: On April 9, the IRS solved the problem described, announcing that 2020 marketplace enrollees who received APTC do not have to file Form 8962. 

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.

Those who filed prior to the passage of the American Rescue Plan Act and paid back excess APTC do not have to file an amended return; the IRS will reimburse them.


In addition to increasing premium subsidies for 2021 and 2022 in the ACA marketplace, the American Rescue Plan Act signed into law by President Biden on March 11 provides an important benefit to 2020 marketplace enrollees. Section 9662 of ARPA stipulates that those enrollees who underestimated their income and so would normally have to pay back some the Advanced Premium Tax Credits (APTC) received will not have to pay back the excess APTC. 

That includes people who estimated their incomes at below 400% of the Federal Poverty Level, the cap for APTC eligibility, but ended up with a declared income above that threshold. Normally, they would have to pay back all APTC received. This year, they owe nothing.

That is not a trivial benefit. According to IRS estimates,* in 2019 3.2 million tax filing households paid back a portion of the APTC they received in 2018, with paybacks totaling $4.4 billion, or about $1,375 per household.  Estimating 1.7 enrollees per filing household** suggests payback of about $800 per enrollee. Similarly, the CBO report*** on the costs of ARPA estimated that APTC forgiveness for 2020 (when total enrollment was nearly identical to that of 2018) would cost $4.7 billion in 2021. (See Charles Gaba's detailed analysis here.)

The catch, for now, is that it's tax season, and as far as I can tell there's no way to access the forgiveness immediately if you're filing now, or to claim it if you've already filed and paid up.  Those who received APTC in 2020 have to fill out Form 8962, which reconciles tax credits received with declared income. If that form shows an amount to be repaid, there's no way at present to controvert that when filing.

The IRS says, effectively, stand by:

The tax filing deadline has been extended to May 15, and an IRS spokesperson emphasized to me that anyone can file for an extension (Form 4868) without having to specify any reason. The IRS is aware of the issue and working on it, the spox said, but he had no further information to offer.

For those who would have owed substantial PTC back -- especially those whose incomes crossed the 400% FPL threshold for subsidy eligibility, who normally would have to pay back all APTC -- the best course may be to sit tight for the present --  and possibly file for an extension if the IRS provides no further guidance before May 15.

Update: an H&R spokesperson writes: 

If you already filed your 2020 taxes and it included repayment of the Premium Tax Credit, the IRS will be sharing soon the best way to update your return. H&R Block is awaiting IRS guidance and will provide that information to our clients as soon as it is available.

I am glad that the company expects direction from the IRS "soon."


* See Table 2.7, "All Returns: Affordable Care Act Items."

** A Treasury Inspector General report on APTC payments indicates that a bit more than half (54%) of households receiving APTC paid some amount back (it also cites a lower estimate than the IRS tables of households paying back APTC -- 2.6 million paying back $3.2 billion). That suggests 5.9 million tax filing households reporting APTC.  As of February 2018, effectuated subsidized enrollment in the ACA marketplace was 9.2 million. In February 2020, it was also 9.2 million. Enrollment outside of the Open Enrollment period in 2020 was elevated, approaching 900 million by May. Thus somewhere in excess of 10 million individuals likely accessed APTC at some point in 2020 (during Open Enrollment, 86% of all enrollees accessed APTC).

*** See "detailed tables," Title 9. Charles Gaba divides the per-person benefit by the full $6.26 billion revenue cost CBO estimates. A part of that cost is project for 2022. If that's because of late payment, perhaps it makes sense to use the larger estimate. 

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1 comment:

  1. The payback regulations were all deeply stupid in the first place. The whole concept of tying social insurance precisely to current income has been a part of Medicaid for decades, and it is deeply stupid there also.

    Losing a government benefit because your situation improves is stingy and administratively expensive. You will not find this kind of penny-pinching in the social insurance systems of Germany, France, and many other nations. In fact you do not find it in American Medicare either.