Another Strage APTC situation

[Tax Prep by Deb]

Ok, I have a married couple who received the APTC.  She went to work and her income put them as a 2 member family over the 400% threshold triggering 100% pay back of the APTC.

I decided just for fun, to look at what would happen if the filed married filing separate, and this is what I found:  In California we are a community property state, that being said when I split their income down the middle and put the allocated APTC where it belongs, it generates the payback because of the married filing separate status, but now they each are below the poverty line of 400% and the program is calculating a repayment minimum which reduces the amount they each would have to pay back resulting in overall a lower repayment.

Am I missing something here?  Can this really be done to lower the amount they would have to pay back?

[jklcpa]

No, if MFS then a married couple is not eligible for the PTC. 

There is a special exception if there is domestic abuse and abandonment, but assuming this isn't the case, your client cannot choose MFS simply to stay under the 400% threshold.

[Tax Prep by Deb]

Then why is it calculating a lesser payment?

I agree it shouldn't bUT I haven't read anything contrary.  I believe they can choose at any time to file separate regardless of the reason why?

[jklcpa]

Yes, they can choose to file MFS any time they want, but that should knock them out of being eligible for the PTC.

Fourth bullet point down on this IRS page: https://www.irs.gov/affordable-care-act/individuals-and-families/eligibility-for-the-premium-tax-credit

and on this one, items #9 and 10 https://www.irs.gov/affordable-care-act/individuals-and-families/questions-and-answers-on-the-premium-tax-credit

I can't answer why ATX is allowing it.  Since it is allowed in certain circumstances, perhaps there is a checkbox that you are missing to tell the program that they aren't eligible, or there may be a programming issue.

[Tax Prep by Deb]

I'm not questioning them having to pay it back.  It's just that if a figure it jointly there is 100% yet if I figure it separately the amount they have to pay back is limited to 2500 each verses 7000 jointly.  It seems that the only difference is the poverty threshhold.  Jointly 100 % filling separate is either 100% or 2500 whichever is less.

Again I know that even filing separate they don't qualify for the credit, but the program is calculating the amount totally different under the changeneral in filing status.

[jklcpa]

Oops, sorry I missed your point.  As I understand it, if the couple chooses to file using MFS and don't qualify under the domestic abuse/abandonment rules with the necessary documentation, then 100% of the PTC is disallowed and payable back with the return.  If they do qualify to use MFS under the special rules for abuse/abandonment, then the caps for line 28 would apply, and the allocation of amounts have specific rules depending on who the policy covers.

So to answer your question, it IS possible that MFS could have a cap on the repayment, but in your case with no domestic abuse /abandonment, simply choosing to file MFS should result in 100% payback of the PTC. I still can't tell you how to make the software do that though, but that is how it should work.

If you want references for that, here's the page from the federal register that discusses it in item #5, and also look at page 7 of pub 974, and the instructions for lines 9 and 28 of form 8962.

https://www.federalregister.gov/d/2014-17695/p-135

Edited March 16, 2017 by jklcpa
added the link & references

[Tax Prep by Deb]

Line 28 The excess APTC you must repay may be limited to the amounts in Table 5, next. Enter the appropriate amount from Table 5 on line 28. If you were married at the end of 2016 but are filing separately from your spouse, the repayment limitations shown in Table 5 apply to you and your spouse separately based on the household income reported on each return.

So according to what I am reading there could be limitations of the repayment based on each individuals tax return.  And this is exactly what I am running into.  Also I came across this:  https://apps.irs.gov/app/vita/content/globalmedia/teacher/premium_tax_credit_form_8962_4012.pdf

There is a section that discusses paying back a large repayment and suggested MFS as a strategy for perhaps lowering it, the same way as putting money into an IRA could lower the repayment.