Earlier, I gave a brief overview of the Premium Tax Credit and how it could affect your 2014 return. In the overview, I mentioned that there are two ways to receive the credit: 1) as a “lump sum” at the end of the year when you file your return or 2) as equal monthly installment payments paid directly to your insurance provider (if you remember correctly, I advised against this option if possible).
The IRS recently released Notice 2015-09, which addresses the second scenario above. Uncle Sam is allowing relief for taxpayers who will owe additional tax if overpaid the advanced Premium Tax Credit throughout the year. Taxpayers will still owe the excess credit received, but they will not be subject to Section 6651(a)(2), penalty for late payment of a balance due. The IRS will also not assess a penalty for underpayment of estimated tax payments related to the credit. In order to receive this relief, you must have filed a timely return (or filed a timely extension), paid or agreed to pay any tax liability owed and reported the amount of the excess advance credit on your timely-filed 2014 return.
Now, the relief only extends to tax owed due to the overpayment of the credit. If you have a $5,000 tax liability ($2,000 due to the overpayment of the credit), you will only receive relief for the $2,000 that directly resulted from the credit. The remaining balance, if unpaid, will be subject to normal penalties and interest. It is important to note that this relief is only available for 2014 and it does not relieve taxpayers from paying their balance due. It simply give them more time to pay, without subjecting them to additional penalties (although interest still applies).
Since the IRS automatically generates deficiency documentation, I can guarantee that you will receive a notification in the mail that states you owe penalties and interest on your unpaid credit. Once you receive this form, you will need to notify the IRS that you are eligible to waive the penalty. To do this, you must file Form 2210 and include an explanation that states you received an overpayment of premium tax credit during 2014. This will qualify you for the relief for 2014.