Excess Advance Payment of Premium Tax Payer Penalty

[me-carney]

EDITED (see 2 additional questions on bottom) Regarding the repayment of Excess Advance Payment of the Premium Tax Payment, a client had marketplace health insurance and correctly estimated their income based on their current circumstances when they applied. They had marketplace insurance for Jan, Feb, Mar 2024. In April started a full time job, got health insurance through employer and immediately canceled marketplace. Annual income was higher than estimated but the first quarter wasn't.  They have a penalty for the excess advance payment. How would a taxpayer know what would happen in the future? Can someone explain how someone would be able to avoid this penalty? I am clearly struggling to understand it. 

Why was this penalized when the proper protocol was followed? Is there logic behind this regulation? 

Thanks.

[IRonMaN]

Aisle 27.  Walmart has a sale on crystal balls this week.

[me-carney]

So you find this just as crazy a rule as I do. The client can prove first quarter income yet is being penalized for not being psychic and knowing a full-time job offer would be coming in just 3 months and thus estimating correctly based on their knowledge at the time. They did everything correctly even immediately contacting Marketplace to cancel insurance. 

[sjrcpa]

It's not really a penalty, is it? Don't they just have to repay the Advance?

And it kind of makes economic sense. The Advance credit is for low income people. Your client turned out not be low income for the year, so give it back.

[IRonMaN]

Yup.  The easiest way to avoid it is to not take the credit during the year.  That way no worries if your situation changes.  If you still qualify for the credit come tax time, you will get your money when you file.