Penalty Relief on Advance Premium Tax Credit Repayment

Taxpayers that received a larger advance premium tax credit than they are entitled will need to repay the difference on their tax return.  This will probably come as a surprise for many in this situation and they may not have the money to repay the excess credit at the time of filing their tax return.

To help smooth the process for the first year of the Affordable Care Act, the IRS will waive late payment penalties on unpaid tax amounts that are related to excess advance payments of the premium tax credit.

This relief only applies to the 2014 taxable year and taxpayers must meet the following requirements to qualify:

  • must be otherwise current with their filing and payment obligations;
  • have a balance due for the 2014 tax year attributable to excess advance payments of the premium tax credit; and
  • report the amount of excess advance credit payments on their timely filed 2014 tax return

Procedure to Avoid Penalties

The IRS will automatically assess the failure to pay penalty and mail a notice demanding payment to the taxpayer.  A letter of response will need to be mailed to the IRS that contains the statement:  “I am eligible for the relief granted under Notice 2015-09 because I received excess advance payment of the premium tax credit.”

To avoid the penalty for Underpayment of Estimated Taxes, taxpayers should check box A in Part II of Form 2210, complete page 1 of the form, and include the form with their tax return along with a statement that says “Received excess advance payment of the premium tax credit.”

While the IRS will abate the late payment penalty, they will still charge interest on all tax not paid by the April 15th due date, and interest will continue to accrue until the liability is paid.

Need to File Tax Return by Due Date

Please note, the penalty relief does not extend the time to file the tax return, the tax return still needs to be filed per the standard due dates.  And the relief does not apply to any underpayment of the individual shared responsibility payment.

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