Premium Tax Credit and Schedule A

Peter Freiermuth   01/21/2015

 I have received a response from IRS/SPEC addressing the management of deduction of Health Insurance Premiums on Schedule A when there is a Premium Tax Credit.

The value of the Premium Tax Credit earned must be deducted from the Health Insurance Premiums in the year that the credit is earned, regardless of whether or not advances are paid.  If there is a requirement to pay back some of the advance, the net benefit of the credit must still be subtracted from the premium.

Example:   If the taxpayers insurance policy premium was $12,000 and they received a premium tax credit of $10,000, they would only be able to deduct the $2,000 paid out of pocket as an itemized deduction, subject to the appropriate % of income limitation. 

Advance payments aren't really part of the equation.  In the example above, if the taxpayer received $11,000 in advance payments and had to repay $1,000, they are still able to claim the $2,000 out of pocket.