There will be taxpayers who will get a nasty surprise when they have their income taxes prepared and find that they have to pay back part or all of their Premium Tax Credit (PTC). The PTC is available for taxpayers who purchase their health insurance through the Health Insurance Marketplace in 2014. When they signed up, most taxpayers received the PTC in advance against their insurance premiums. But they have to reconcile that advance to their actual credit when they file their 2014 tax return.
Few people will have the PTC calculated on their return exactly match the advance PTC they received. As a result, they will get more PTC when they file their return or pay some back. Hopefully, few taxpayers will have to pay a large sum back.
Taxpayers who owe a balance due on their tax return which is due to paying back their PTC have been given a little reprieve by the IRS. They will still have to pay the PTC back but they may qualify to not pay penalties on the balance due.
For taxpayers who can’t pay all their balance due by April 15th, they might be able to avoid the failure-to-pay penalty. They will need to file their return on time or file an extension. When they receive a notice about the balance due, they should send in a letter with the phrase; “I am eligible for the relief granted under Notice 2015-9 because received excess advance payment of the premium tax credit.” They will still be accessed interest on the balance.
The second penalty eligible for relief is the Underpayment of Estimated Tax Penalty. The penalty is generated when the balance due on the return meets certain qualifications. To have this penalty waived they need to include Form 2210 with checkbox A in Part II marked and include the phrase; “Received excess advance payment of the premium tax credit.”
Taxpayers who owe back some of their PTC must file their return on time or extend the return and have it filed by the extension due date to take advantage of the penalties being waived. If the return is not filed on time, they will not only owe the tax but the failure-to-file penalty on top of the failure-to-pay and any underpayment of estimated tax penalty.