Where an employer, for any month, offers an employee affordable ACA compliant health insurance, the employee is not qualified for a premium tax credit. However, some taxpayers, not being aware of that restriction, acquired their insurance through the marketplace since it was subsidized by the advance premium tax credit (APTC) and turned out to be less costly than the affordable coverage offered by the employer.
For 2015, employers with 100 or more full-time employees, including full-time equivalents, were required to file Form 1095-C, which enabled the IRS to determine if an employee was offered affordable health insurance and determine which taxpayers incorrectly claimed the PTC for months they were offered affordable employer coverage. As a result the IRS has been issuing notices to taxpayers who claimed a PTC for which they were not entitled.
Beginning in 2016 the reporting requirements also apply to employers with 50 or more full-time equivalent employees.
Where a taxpayer repays the PTC, that repayment could increase their medical itemized deduction or their above-the-line self-employed health insurance deduction, depending upon the circumstances.
However, contrary to the general rules for cash basis taxpayers, and based on the example in Pub 502, the deduction will go to the year of the credit and not the year in which the credit is repaid. This means if the amount is significant enough, the prior year return must be amended to claim the additional health insurance deduction. (2016 IRS Pub 502, Page 13)
Example 1. Amy is under age 65 and unmarried. The cost of her health insurance premiums in 2016 is $8,700. Advance payments of the premium tax credit of $4,200 are made to the insurance company and Amy pays premiums of $4,500. On her 2016 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 2016. 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 2016. 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.