Your Premium Tax Credit repayment is deductible

Your Guide to State, Local, Federal, Estate + International Taxation

premium tax credit, health insurance, taxHave you had to pay back some of the advance premium tax credit received through the Health Insurance Marketplace? If so, this is an article you will want to keep reading.

First off, the reason you must repay some of that is usually because you did not estimate your income properly for the year or something large unexpectedly came up. Then you forgot – because we all do – to update your income information through your marketplace account. However, if you are sitting there saying, “Oh! Now I understand why that happened to me!” – I have good news for you. The amount you had to repay can be deducted on Schedule A or as self-employed health insurance.

If you are still trying to figure out this whole health insurance marketplace thing, then sit tight and keep reading as I will share some examples that will hopefully set off that light bulb in your head.

IRS Publication 502 states the following:

You can’t include in medical expenses the amount of health insurance premiums paid by or through the premium tax credit. You also can’t include in medical expenses any amount of advance payments of the premium tax credit made that you did not have to pay back. However, any amount of advance payments of the premium tax credit that you did have to pay back can be included in medical expenses.

Example 1

Amy is under age 65 and unmarried. The cost of her health insurance premiums in 2017 are $8,700. Advance payments of the premium tax credit of $4,200 are made to the insurance company and Amy pays the remaining premiums of $4,500. On her 2017 tax return, Amy is allowed a premium tax credit of $3,600 and must repay $600 excess advance credit payments (which is less than the repayment limitation). Amy is treated as paying $5,100 ($8,700 less the allowed premium tax credit of $3,600) for health insurance premiums in 2017. Because $5,100 is more than 10% of Amy’s AGI, when she fills out her Schedule A, she enters $5,100 on line 1.

Example 2

The facts are the same as in Example 1, except Amy is allowed a premium tax credit of $4,900 on her tax return and receives a net premium tax credit of $700. Amy is treated as paying $3,800 ($8,700 less the allowed premium tax credit of $4,900) for health insurance premiums in 2017. Because $3,800 is more than 10% of Amy’s AGI, when she fills out her Schedule A, she enters $3,800 on line 1.1

Hopefully for you, this brings good news, so please consult your Henry+Horne tax advisor to see if this can benefit your situation.

Michael Willett

  1. Figures in the examples given have recently been changed by the IRS. The 10% of AGI is now 7.5% of AGI. Click here to view the change.