Election Doesn’t Protect Against Liability for Excess ACA Credits

Election Doesn’t Protect Against Liability for Excess ACA Credits

U.S. Tax Court

The Tax Court, sustaining an IRS determination, held that an individual’s modified adjusted gross income (MAGI) under section 36B to determine his eligibility for advance premium tax credits under the Affordable Care Act included all the Social Security benefits he received in that year despite a <a href="/research/federal/usc26/86#cq7v-0000043" resolve="/lr/resolve/86e/cq7v#cq7v-0000043" title="86(e)">section 86(e)</a> election to exclude a lump sum payment for the prior year. Levon Johnson received $26,180 in Social Security benefits in 2014, $11,902 of which was attributable to a lump sum payment for 2013. Johnson also received $4,460 in advance payments of the healthcare premium tax credit in 2014. On his 2014 return, Johnson reported wages and a portion of his Social Security benefits as taxable and didn’t report any excess premium tax credits. After the IRS issued a notice of deficiency that determined he wasn’t entitled to the healthcare tax credits, Johnson filed an amended return. On the amended return, Johnson claimed a section 86(e) election to exclude the lump sum payment from gross income and claimed an excess advance premium tax credit, but not to the extent claimed by the IRS. Judge Joel Gerber, writing for the court, noted that this case presents an issue of first impression for the court: whether Johnson’s MAGI under <a href="/research/federal/usc26/36B" resolve="/lr/resolve/36b/cpdk" title="36B">section 36B</a> included only the taxable Social Security income for 2014 or whether it included the total amount he received, including the amount attributable to 2013. Gerber explained that section 36B provides that the premium tax credit is generally available to taxpayers with a household income of at least 100 percent but not more than 400 percent of the federal poverty line, and household income is based on the taxpayer’s MAGI plus the MAGI of his family members. The dispute between Johnson and the IRS centered on whether the section 86(e) excluded amount was included in determining his MAGI under section 36B. To determine the effect of the section 86(e) election on tax credit eligibility, Gerber examined the plain meaning of the text of section 36B. Gerber explained that when computing the MAGI, section 36B requires a taxpayer to include Social Security benefits that were not included in gross income under <a href="/research/federal/usc26/86" resolve="/lr/resolve/86/cq7v" title="86">section 86</a> for the tax year, noting that it doesn’t address the effect of a section 86(e) election. The court found that the phrase “under section 86” was not ambiguous and required consideration of section 86 in its entirety, including section 86(e). In addition to finding that the text was unambiguous, the court found that the legislative history of section 36B also supported its holding. The Tax Court held that Johnson must include all the Social Security benefits he received in 2014, regardless of the section 86(e) election. As a result, Johnson’s household income slightly exceeded the threshold for eligibility for the advance premium tax credit, and the court sustained the IRS’s determination that he received $4,460 in excess credits.

The Tax Court, sustaining an IRS determination, held that an individual’s modified adjusted gross income under section 36B to determine his eligibility for advance premium tax credits under the Affordable Care Act included all the Social Security benefits he received in that year despite a section 86(e) election to exclude a lump sum payment for the prior year.

The Tax Court, sustaining an IRS determination, held that an individual’s modified adjusted gross income (MAGI) under section 36B to determine his eligibility for advance premium tax credits under the Affordable Care Act included all the Social Security benefits he received in that year despite a section 86(e) election to exclude a lump sum payment for the prior year. Levon Johnson received $26,180 in Social Security benefits in 2014, $11,902 of which was attributable to a lump sum payment for 2013. Johnson also received $4,460 in advance payments of the healthcare premium tax credit in 2014. On his 2014 return, Johnson reported wages and a portion of his Social Security benefits as taxable and didn’t report any excess premium tax credits. After the IRS issued a notice of deficiency that determined he wasn’t entitled to the healthcare tax credits, Johnson filed an amended return. On the amended return, Johnson claimed a section 86(e) election to exclude the lump sum payment from gross income and claimed an excess advance premium tax credit, but not to the extent claimed by the IRS. Judge Joel Gerber, writing for the court, noted that this case presents an issue of first impression for the court: whether Johnson’s MAGI under section 36B included only the taxable Social Security income for 2014 or whether it included the total amount he received, including the amount attributable to 2013. Gerber explained that section 36B provides that the premium tax credit is generally available to taxpayers with a household income of at least 100 percent but not more than 400 percent of the federal poverty line, and household income is based on the taxpayer’s MAGI plus the MAGI of his family members. The dispute between Johnson and the IRS centered on whether the section 86(e) excluded amount was included in determining his MAGI under section 36B. To determine the effect of the section 86(e) election on tax credit eligibility, Gerber examined the plain meaning of the text of section 36B. Gerber explained that when computing the MAGI, section 36B requires a taxpayer to include Social Security benefits that were not included in gross income under section 86 for the tax year, noting that it doesn’t address the effect of a section 86(e) election. The court found that the phrase “under section 86” was not ambiguous and required consideration of section 86 in its entirety, including section 86(e). In addition to finding that the text was unambiguous, the court found that the legislative history of section 36B also supported its holding. The Tax Court held that Johnson must include all the Social Security benefits he received in 2014, regardless of the section 86(e) election. As a result, Johnson’s household income slightly exceeded the threshold for eligibility for the advance premium tax credit, and the court sustained the IRS’s determination that he received $4,460 in excess credits.

Sec. 36B Refundable credit for coverage under a qualified health plan

Sec. 86 Social security and tier 1 railroad retirement benefits

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Election Doesn’t Protect Against Liability for Excess ACA Credits