Life Events Can Create Unexpected Financial Consequences – Why It Is Important to Communicate With Your Tax Professional
Unexpected Bad News
Some taxpayers received unexpected news when their 2018 tax returns were prepared and they learned that they had a very significant and unexpected balance due the IRS.
In the Tax Court case of T.T. Fisher, TC Memo 2019-44, Dec. 61,457(M), May 1, 2019, a single person applied for health care coverage from the market place at the start of the calendar year. Since that person’s household income was below the 400 percent of the amount of the federal poverty line, she received the advanced premium tax credit (PTC) for which she was rightfully qualified to receive.
However during the tax year, a major life event occurred. She got married. Why should her marital status affect her tax return where she would owe the IRS a significant balance due?
Since she was married as of December 31, according to the tax law, the household income was computed not only on her income, but that of her husband’s income also. Combining both incomes put the couple’s household income over the 400 percent threshold of the poverty line and the IRS informed the couple that the wife’s entire advanced PTC had to be repaid.
Tax Court Findings
The taxpayers argued that since the wife was eligible for the PTC before the taxpayers married, they should not be required to repay the entire amount of the advance PTC payments made on her behalf.
The court did find that the taxpayers were eligible for “alternative computation” to compute their additional tax liability because they were unmarried at the beginning of the tax year at issue and married at the end of that same year and they filed a joint return.
However after comprehensive calculations, the Tax Court adjudged that the taxpayers’ alternative premium assistance amount for their pre-marriage as well as married months was zero.
Further, the taxpayers’ alternative marriage-year tax credit which is a sum of the alternative premium assistance amount for their pre-marriage and marriage months, was also zero. Therefore, the taxpayers’ additional tax liability was equal to the excess of their advance PTC payments over their alternative marriage-year credit. Because the Tax Court treated excess advance PTC payments as an increase in the tax imposed, the taxpayers were held not eligible for the PTC and were required to repay the entire amount of the advance PTC payments made.
Tax Planning Tip #1:
One of the many benefits of working with a tax professional is that s/he is available year-round to advise you. Whether it is a financial decision you are considering (e.g., purchase of life or disability insurance, college or retirement planning) or a life event has or will happen (birth of a child, unexpected death of a spouse or a planned marriage), it is best to consult with your tax advisor before the occurrence of the event..
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.