Worried about paying a clawback? If you received an Advance Premium Tax Credit to subsidize your health insurance in 2014, but then had an unexpectedly good year financially in 2014, you may be required to pay all or part of the credit you received. However, IRS has announced that it will waive penalties for late payment for taxpayers who are otherwise current on their taxes and who file their returns on time — either April 15th or in October after filing for an automatic extension. The waiver of penalties includes an extension of time to pay the clawback amount. Interest will still be charged, so it’s advisable to pay by April 15, 2015 if possible; but this may be welcome news for taxpayers who did not anticipate the impact of the clawback amount.
Here’s what the IRS says:
Some taxpayers who have a balance due on their 2014 income tax returns attributable to the reconciliation of their advance credit payments and the premium tax credit calculated on their returns may not be able to pay by the due date for payment, generally April 15. Taxpayers who do not pay their entire tax liability by the due date for payment generally would be liable for the § 6651(a)(2) penalty for failure to pay, unless they requested and were granted relief due to reasonable cause. Additionally, some taxpayers may discover when they reconcile advance credit payments with the premium tax credit that their estimated tax payments were understated, potentially making these taxpayers liable for the § 6654(a) estimated tax penalty. Therefore, in consideration of these factors, and consistent with the authority in § 6651(a)(2) and § 6654(e)(3) to provide relief from penalties for taxpayers, this Notice provides relief from the § 6651(a)(2) and § 6654(a) penalties for taxpayers who satisfy the requirements in this Notice.
The penalty relief is not automatic, but taxpayers may request the relief when they received an IRS notice concerning underpayment o their taxes:
Generally, the Service automatically assesses the § 6651(a)(2) penalty against taxpayers and sends a notice demanding payment. When responding to such a notice, taxpayers should submit a letter to the address listed in the notice that contains the statement: “I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.”
Taxpayers who file their returns by April 15, 2015 will be entitled to relief under this Notice even if they have not fully paid the underlying liability by the time they request relief.
Taxpayers who file their returns after April 15, 2015 must fully pay the underlying liability by April 15, 2016 to be eligible for relief under this Notice.
Interest will accrue until the underlying liability is fully paid.
The wording of this notice seems to suggest a slight advantage for those who file their returns by April 15th, as there is no time limit imposed on eligibility for relief from the penalties. Taxpayers who request an extension on filing will have to pay the full clawback by April 15, 2016 in order to qualify for the relief.
For more information, see IRS Notice 2015-9, PENALTY RELIEF RELATED TO ADVANCE PAYMENTS OF THE PREMIUM TAX CREDIT FOR 2014