Tax Court rules couple must repay Affordable Care Act premium tax credit

Tax Court rules couple must repay Affordable Care Act premium tax creditIn the first of what is nearly certain to be a long line of cases, the U.S. Tax Court ruled in Walker v. Commissioner, T.C. Summ. Op. 2017-50 (July 12, 2017), that a couple who received an advanced premium tax credit in 2014 was required to repay the entire advanced amount because they did not qualify for the credit. The Affordable Care Act (ACA) established a premium tax credit to assist eligible taxpayers with the cost of their premiums for health insurance purchased through an exchange.

A taxpayer generally qualifies for the premium tax credit if his or her household’s modified adjusted gross income (MAGI) is at least 100%, but not greater than 400%, of the federal poverty line amount for the taxpayer’s family size. This premium tax credit may be advanced to taxpayers in order to help them pay the insurance premiums as they become due. The amount of the advanced credit is based upon the exchange’s estimate of the premium tax credit that the taxpayer may be entitled to claim on his or her income tax return. When the taxpayer files his or her income tax return, the taxpayer who received an advanced credit must reconcile the advanced credit payments made during the year with the amount of the premium tax credit for which he or she is actually eligible.

Under the facts the case, the taxpayers enrolled in health insurance for 2014 through Covered California, a health insurance exchange. Their monthly premium for their health insurance coverage was $1,378. They elected to receive a monthly advance of the premium tax credit of $1,077 ($12,924 in aggregate) to cover part of the cost of the insurance, and this amount was paid on behalf of the taxpayers to the insurer. The taxpayers filed a Form 8962, “Premium Tax Credit (PTC)” with the IRS to report $75,199 of MAGI for 2014, which was in excess of 400%of the 2014 poverty line for a family of two.

The taxpayers asserted in court that they were informed by Covered California that they qualified for the premium tax credit, and that they would not have purchased insurance through Covered California if they had known that they did not qualify for the premium tax credit. While the Tax Court was sympathetic to their plight, the court ruled that the couple was required to repay the government the full $12,924 that was advanced to them in 2014 because they were not eligible for the premium tax credit. The court noted that even though it appeared that Covered California may have incorrectly informed the taxpayers that they were eligible for the advanced credit in 2014, the court was bound by the statute as written. The IRS had originally imposed a $2,584 accuracy-related penalty under Section 6662(a) in its notice of deficiency to the taxpayers, but the IRS conceded this penalty at trial.

Contact Eddie Adkins
Partner, Washington National Tax Office
T +1 202 521 1565

Jeffrey Martin
Partner, Washington National Tax Office
T +1 202 521 1526

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