Excess Payment of PTC and Medical Expense Deduction Schedule A

[dmat]

Proseries is now correctly leaving off the repayment of Excess Advance Pmts of PTC. Good on that.

But the software is transferring all of these expenses (amount of insurance actually paid to Healthcare.gov AND the Excess Advance Pmts that do not have to be repaid) to deductible Schedule A medical expense.

That cannot be correct can it? These expenses should not be forgiven AND also deductible right? Nothing is normal anymore so I figured I would ask. Let me know if anyone has seen/heard guidance on this issue from the IRS.

[Just-Lisa-Now-]

Ive been making a negative adjustment on Line 2a of the medical expenses worksheet in the amount of the excluded payback.

[dmat]

Thanks Lisa! I do understand how to reduce it. My question is, why is Proseries doing this? Are they thinking it may be deductible as well as forgiven? 

I will do the same thing that you are doing until I see IRS guidance. 

However, I want to inform my clients if it may end up also being deductible in addition to forgiven. 

[Just-Lisa-Now- · Accepted solution]

They did a quick fix to get rid of the payback, they didnt get all the domino effects from the change programmed in it seems.

Ive seen other preparers actually getting IRS rejects for these erroneous medical deductions from the APTC

[BobKamman]

@dmat  "Are they thinking it may be deductible as well as forgiven?"

Why not think that?

If taxpayers used $1,800 in EIPs to pay medical expenses, wouldn't that be deductible?

Someone paid the insurance bill.  The insurance companies didn't write it off.  I don't think we have heard the last of the issue, and I will not be surprised if the answer is "we're not going to raise your taxes just because we didn't let you pay for your health insurance."

[dmat]

This is my concern as well. I am going to hang my hat on Lisa's message about the IRS rejecting returns with those expenses allowed. 🙂

EIPs are a little different. I would compare this more to the ERC credits (which reduce deductible wage expense) but who really knows? All we can do is go on what we know now I guess. The client can decide if they want to amend later if the IRS updates guidance and allows for deduction as well. 

[BobKamman]

@dmat " I would compare this more to the ERC credits (which reduce deductible wage expense) but who really knows?"

The best hearsay is the second-hand type, but I am left wondering how IRS would know that a medical expense comes from unpaid PTC. 

Compare it to ERC?  How about comparing it to expenses paid with a PPP loan?

[dmat]

Yes, but the initial guidance from the IRS was that the expenses associated with PPP forgiveness would NOT be deductible. It took an act of Congress there at the end of the year to confirm that the loan was forgiven and the expenses were also deductible.

We'll see. I agree that they could come out with guidance to allow for deduction. Absent specific guidance I'm going to assume they are not deductible.

[BobKamman]

That's what I like about quickie IRS guidance.  It's always reliably wrong.