Taxpayer Had to Repay Excess Premium Credit Despite Exchange Not Reacting to Notice of Change in Income

The taxpayers in the case of McGuire v. Commissioner, 149 TC No. 9, were asking the Tax Court to find that they did not owe $7,805 in excess advance premium credit they had received under the Affordable Care Act (ACA). However, the Court found that it lacked the ability to grant the relief the taxpayers were requesting.

The taxpayer originally had obtained insurance from Covered California, an ACA health care exchange, for 2014.  Based on the household income reported, Covered California computed that the taxpayers were eligible for an advance premium credit of $591 per month, for a total credit of $7,092.  The taxpayers enrolled in a plan with a gross monthly premium of $1,181.97 per month.  Due to the credit, the net premium they paid each month was $590.97.

After the determination was made, but before the beginning of 2014, Mrs. McGuire began working at a job that paid her $600 per week.  The taxpayers notified Covered California indicating that the amount should be included in their income.  That additional income pushed the taxpayers’ income above 400% of the Federal poverty line for a family of two living in their locale.  Thus, they no longer would qualify for any premium credit.

Despite giving notice to the exchange, Covered California never adjusted the taxpayers’ premiums.  Even worse, the taxpayers attempted to get their address updated with the exchange, but the exchange never updated its records.  Thus, the Form 1095-A that the exchange issued at the end of the year never was delivered to the taxpayers.

When the taxpayers prepared their 2014 income tax return, they noted that they had full-year coverage for purpose of the shared responsibility payment, but they did not prepare or fill out Form 8962 to compute their premium tax credit. 

The IRS did notice the issue and notified the taxpayer that they were required to pay back the entire $7,902 credit.  The taxpayers argued that they should not be required to pay back that credit, because they would not have purchased the insurance policy that covered them in 2014 for the full, unsubsidized premium.  As the Court quoted Mrs. McGuire:

[The Commissioner argues] that if Petitioners are liable for the deficiency, then they would be no worse off financially than if the APTC had been terminated in early 2014. This is simply untrue and does not alter the fact that it was Covered California’s responsibility to ensure clients only received the Advance Premium Tax Credit for which they qualified. We would never have committed to paying for medical coverage in excess of $14,000 per year. We cannot afford it and would have continued to shop in the private sector to purchase the minimal, least expensive coverage or gone without coverage completely and suffered the penalties. * * *

* * * If we are deemed responsible for paying back this deficiency, it would be devastating and completely unjust. We hope and pray you are convinced that we have made every single effort to get Covered California to make proper adjustments to our reported income and subsequently to the Advance Premium Tax Credit we were qualified to receive without success. The whole purpose of the Affordable Care Act was to provide citizens with just that, affordable healthcare. This has been an absolute nightmare and we hope you will rule fairly and justly today.

Essentially, the taxpayers position was that if Covered California had considered the information the agency was provided before the year began, the taxpayers would have searched for other coverage.  In the end, Covered California never adjusted their monthly charges and thus denied the taxpayers the ability to seek other, more affordable, coverage.

The Tax Court noted that they are not a court of equity and cannot “ignore the law to achieve an equitable end.”  As the Court concludes:

Although we are sympathetic to the McGuires’ situation, the statute is clear; excess advance premium tax credits are treated as an increase in the tax imposed. Sec. 36B(f)(2)(A). The McGuires received an advance of a credit to which they ultimately were not entitled. They are liable for the $7,092 deficiency.