Common questions for Form 8962 Premium Tax Credit in Lacerte

This article will help you with frequently asked questions about the Premium Tax Credit, including how to resolve diagnostic ref. 42135, how to complete Form 8962 when your client can claim the self-employed health insurance deduction, and how to generate less common sections of the form.

For tax years 2023-2025:

Taxpayers with a household income that exceeds 400% of the federal poverty line for their family size may be allowed a PTC. For more information, click here.

Table of contents:

Does the 8962 still apply for tax years after 2018?

Yes. Under the Tax Cuts and Jobs Act, the individual shared responsibility payment was reduced to $0 for months beginning after December 31, 2018. Beginning in tax year 2019, Form 1040 no longer has a "Full-year health care coverage or exempt" box, and Form 8965 for Health Coverage Exemptions is no longer in use. Due to these changes, Forms 1095-B and 1095-C are no longer required to be entered into the tax return and should be kept by the taxpayer for their records.

However, if your client received Form 1095-A Health Insurance Marketplace Statement, you'll need to enter that information in their tax return. The 1095-A is used to generate Form 8962 to reconcile any advance payments of the premium tax credit or claim the premium tax credit. Click here for more information.

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Why is the tax year 2021 Form 8962, line 5 showing 133%?

If your client (or their spouse, if married filing jointly) received unemployment compensation for any week of 2021, their household income for purposes of this form is capped at 133%. See the Form 8962 instructions for more information.

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How does the American Rescue Plan impact this form?

The American Rescue Plan Act was signed into law on March 11, 2021, and eliminated the 2020 excess advance premium tax credit repayment for certain filers. This provision applies only to tax year 2020.

To apply the changes in Lacerte:

1. Go to Screen 3, Miscellaneous Information.
2. Check the box labeled Apply the American Rescue Plan Act provisions.

This checkbox will apply the provisions on a client-by-client basis, and prevent changes from being applied to clients whose returns were already filed.

For clients who owe excess APTC repayment:

• Form 8962 won't be attached to the return.
• No repayment amount will be included on Schedule 2, line 2.
• The IRS won't correspond for a missing Form 8962 or ask for more information about the excess APTC.

For clients who can claim a net premium tax credit (PTC):

• Form 8962 will still be attached to the return.
• The calculated credit will still flow to Schedule 3, line 8.

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How do I resolve e-file diagnostic ref. 42135: Modified AGI total of lines 2a and 2b are negative?

For a return containing a Form 8962, Premium Tax Credit (PTC), under Part 1, if the total of line 2a and line 2b amounts are negative, a 0 dollar amount will appear in line 3, Household Income and the following e-file critical diagnostic will be triggered:

Form 8962: Household income on line 3 must equal the total of line 2a, Modified AGI, and 2b, dependents' modified AGI, for efile purposes. If the total of lines 2a and 2b are negative, zero will print on line 3 and this return will need to filed as a conventional paper return. (ref. #42135)

The e-file critical diagnostic is triggered to prevent the return from being filed because the return would be rejected by the IRS with the following electronic filing business rule rejection:

F8962-004-01 If Form 8962, Line 1 'TotalExemptionsCnt' has a non-zero value, then Line 3 'HouseholdIncomeAmt' must be equal to the sum of Line 2a 'ModifiedAGIAmt' and Line 2b 'TotalDependentsModifiedAGIAmt'.

Therefore, if the sum of lines 2a and 2b are negative, this condition can not be met because IRS form instructions for 8962 require the following:

Line 3
Add the amounts on lines 2a and 2b. Combine them even if one or both of them are negative. If the total is less than zero, enter -0- on line 3.

As a result, these returns must be paper filed.  This doesn't mean that a taxpayer with a negative modified AGI cannot claim a Premium Tax Credit - only that the return cannot be electronically filed.

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How do I resolve e-file reject F8962-070?

Starting in tax year 2023, if the taxpayer, spouse, or dependents enrolled in the marketplace, even if they never activated their policy, the marketplace may have issued them a 1095-A. If the return is e-filed without the 1095-A the IRS will reject the return with error F8962-070, which reads as:

"The e-file database indicates that Form 8962 or a binary attachment with description containing 'ACA Explanation' must be present in the return."

To solve this reject, you'll want to attach a PDF explaining why the 1095-A wasn't reported with the return, and on the e-file PDF/Miscellaneous screen, for the Link to form (defaults to main form) field, select ACA Explanation from the picklist. ACA explanation is located in the Main Form section.

If the taxpayer is unsure, have them contact HealthCare.gov to search for all the SSN's on the tax return.

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How does Lacerte calculate the 8962 with a self-employed health insurance deduction?

If Form 8962 is generating with a Premium Tax Credit and you have a SE health insurance deduction on Schedule 1, line 16 your deduction and credit may be adjusted by the calculations described in Rev. Proc. 2014-41.

Avoid duplicate entries: If the amount of SE Health Insurance deduction entered on Screen 24, Adjustments to Income is the same amount entered on Screen 39.2, Form 1095-A, you will need to remove the amount from Screen 24, Adjustments to Income before completing the steps below. Only enter on Screen 24, Premiums not entered elsewhere.

To have Lacerte calculate the SE Health Insurance Premium in conjunction with the PTC:

1. Go to Screen 39 Health Insurnace Marketplace Statement
2. Choose the Form 1095-A - Health Insurance Marketplace Statement section.
3. From the left Sections box choose SE Health Insurance.
4. Select the applicable Form (Ctrl+T).
5. Select the applicable Activity name or number.
6. If applicable, enter the Related activity start month.
7. If applicable, enter the Related activity end month.

How is Lacerte coming up with the amounts for the SE Health Insurance Deduction and PTC?

There's not one correct answer for how much SE Health Insurance Deduction and PTC to take. The basic rules are to reduce the SE Health Insurance Deduction by the PTC amount so the return is not doubling the deduction and to reduce the premiums paid by any advanced payments. You may use any calculation method you want that satisfies the requirements of the tax law.

Per Rev. Proc. 2014-41 Section 3. Scope, "Using the calculations in this revenue procedure is optional."

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Can I override or adjust the 8962?

On screen 39.1, Health Coverage, Exemptions, and Miscellaneous there are several input fields to adjust or override the 8962.

• Domestic abuse victim/spousal abandonment relief
  
  • Checking this box will allow your married filing separate taxpayer to take the Premium Tax Credit under the Married Taxpayers: Situation 2 from Form 8962 instructions
• Other taxpayer will reconcile all APTC paid and this taxpayer is not taking the PTC (tax family size =0)
• Qualifies for PTC even if household income is less than 100% of the federal poverty line
  • Checking this box will force the Form 8962 Line 6 to Yes even if the household income is less than 100%.
• Dependents' modified AGI
  • Enter in this field any amount that is needed for the 8962 line 2b. See the Form 8962 instructions for a worksheet to figure the amount to enter.
• Poverty table [O] (Ctrl+T)
  • This will override the entry from Screen 1, Client Information for Resident State as of 12/31/19 and will check the box on Form 8962 line 4.
• Excess advance premium tax credit repayment [O]
• Net premium tax credit [O]

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How do I generate 8962 Part IV, Allocation of Policy Amounts?

1. Go to Screen 39.1, Health Coverage, Exemptions, and Miscellaneous.
2. Click on Form 1095-A Health Insurance Marketplace  from the left navigation panel to open screen 39.2
3. Enter the information from Form 1095-A.
4. From the left Sections box choose Shared Policy Allocation (Part IV).
5. Complete the Allocations table:
   1. In the SSN of Taxpayer Allocation enter the SSN of the other taxpayer. This will flow to Form 8962, Part 4, lines 30-33 column b.
      • Enter the SSN of the taxpayer with whom you are allocating policy amounts. The SSN may or may not be report on your Form 1095-A, depending on your relationship to the other taxpayer.
   2. Enter the Allocation - Start Month that will flow to the Form 8962, Part 4, lines 30-33 column c.
      • Enter the first month you are allocating policy amounts.
   3. Enter the Allocation - End Month that will flow to Form 8962, Part 4, lines 30-33 column d.
      • Enter the last month you are allocating policy amounts.
   4. If applicable enter the Allocation % Applied to Monthly - Premium % this will flow to Form 8962, Part 4, lines 30-33 column e.
      • If your allocation situation requires you to allocate the enrollment premium on Form 1095-A, lines 21 through 32, column A, enter the allocation percentage for the amount that applies to this return in column e. Enter your allocation percentage as a decimal rounded to two places (for example, for 40%, enter 0.40). Otherwise, leave column e blank.
   5. Enter the Allocation % Applied to Monthly - SLCSP % this will flow to Form 8962, Part 4, lines 30-33 column f.
      • If your allocation situation requires you to allocate the premium for the applicable SLCSP on Form 1095-A, lines 21 through 32, column B, enter the allocation percentage for the amount that applies to this return in column f. Enter your allocation percentage as a decimal rounded to two places (for example, for 67%, enter 0.67). You will enter an allocation percentage in column f, in the following two circumstances.
        • You allocated the policy amounts under Taxpayers divorced or legally separated in 2020 (Table 3, Step 1).
        • You allocated the policy amounts under Policy shared with an individual for whom another taxpayer claims a personal exemption (Table 3, Steps 3, 4, or 5), and APTC was paid for an individual covered by the policy who was not in your tax family.
      • Leave column f blank in all other allocation situations... (See the 8962 instructions for more information.)
   6. Enter the Allocation % Applied to Monthly - Adv. Payment of the PTC % this will flow to Form 8962, Part 4, lines 30-33 column g.
      • If your allocation situation requires you to allocate the APTC on Form 1095-A, lines 21 through 32, column C, enter the allocation percentage for the amount that applies to this return in column g. Enter your allocation percentage as a decimal rounded to two places (for example, for 80%, enter 0.80). Otherwise, leave column g blank

See Form 8962 instructions for more information and specific allocation situations.

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How do I generate 8962 Part V, Alternative Calculation for Year of Marriage?

1. Go to Screen 39.1, Health Coverage, Exemptions, & More
2. From the left Sections box choose Part V - Alternative Calculation For Year of Marriage (8962).
3. Enter the Date married (if in current year)
4. Enter the Taxpayer alternative family size as the family size that existed before the marriage.
5. Enter the Spouse alternative family size as the family size that existed before the marriage.

Form 8962, Part V will not generate unless the follwoing two conditions have already been met:

• Form 8962 is already generating.
• You have excess APTC that must be repaid.
• Meet the IRS exception requirement below.

Electing the alternative calculation is optional, but may reduce the amount of excess APTC the taxpayer must repay.

For tax years 2021 to current:

When date married and family size entries are made, Worksheet I will generate on Form 8962, part V for the calculation of their alternative monthly contribution amount. If Worksheet I calculates a tax benefit to the taxpayer, the checkbox will generate on line 9 to show that the alternative calculation is being applied and the repayment amount will be reduced.

For tax years 2020 and prior:

To be eligible to make this election, the taxpayer must meet either of the following conditions:

• Checked the "No" box on Form 8962, line 6. The taxpayer and spouse must have been married on December 31, 2020 and be filing a joint return for the current year. The taxpayer and spouse must each have been unmarried on January 1, 2020. A member of the tax household must have been enrolled in a qualified health plan before the first full month of marriage. Advanced Premium Tax Credit must also have been paid for someone in the family during the current year.
• Checked the "Yes" box on Form 8962, line 6. Excess Advanced Premium Tax Credit must have been paid to the taxpayers in 2020.

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