Why Is the IRS Asking Me for Form 8962? Here’s What You Need to Know

Receiving a notice from the IRS about Form 8962 can be confusing, especially if you’re unsure why it’s needed. This form reconciles the Premium Tax Credit (PTC), which helps lower health insurance costs for those who purchase coverage through the Health Insurance Marketplace. If the IRS is requesting it, there’s likely an issue that must be resolved before your tax return can be processed correctly.

Reconciliation of Health Premium Credits

When taxpayers receive advance payments of the Premium Tax Credit (APTC) to help cover health insurance costs, the IRS requires a final calculation to ensure the correct amount was applied. This reconciliation compares the APTC received during the year to the actual credit a taxpayer qualifies for based on their reported income. If too much was received, the excess may need to be repaid. If too little was applied, an additional credit may be available to reduce tax liability or increase a refund.

Form 8962 calculates the difference between the estimated income used to determine the APTC and the actual income reported. If the form is missing, incomplete, or contains errors, the IRS may request it before processing the return. This ensures taxpayers receive the correct financial assistance and prevents unexpected tax bills.

Discrepancies in Marketplace Data

The IRS may request Form 8962 if there are inconsistencies between the tax return and the data reported by the Health Insurance Marketplace. These discrepancies often arise when the Marketplace reports different amounts for the APTC than what a taxpayer includes on their return.

A common source of discrepancies is incorrect Form 1095-A information. This form, issued by the Marketplace, details monthly premium amounts, the second lowest cost Silver plan (SLCSP), and any APTC received. If the figures on a tax return do not match Form 1095-A, the IRS may flag the return. Errors can occur if the taxpayer miscalculates amounts, if the Marketplace issues a corrected Form 1095-A after filing, or if an outdated version of the form is used.

Timing issues can also cause inconsistencies. If a taxpayer updates their Marketplace application mid-year due to changes in coverage or eligibility, the reported APTC amounts may differ from the original estimates. For instance, switching plans or having coverage gaps can lead to subsidy adjustments that are not reflected accurately on the return. The IRS will then request Form 8962 to verify the correct credit calculation.

Changes in Family or Income

Life changes such as marriage, divorce, or the birth of a child affect household size and Premium Tax Credit eligibility. If these changes are not reported to the Marketplace, the advance payments may be miscalculated, leading to discrepancies when filing taxes. A newly married couple, for example, may find their combined income places them above the threshold for receiving subsidies, requiring repayment of excess credits.

Income fluctuations can also create issues. If a taxpayer earns significantly more or less than originally projected, it can result in a misalignment between the financial assistance received and the amount actually owed. A job promotion, loss, or freelance income spike can push earnings outside the expected range used to determine subsidy eligibility. Since the PTC is based on a sliding scale tied to the federal poverty level, even small income changes can shift subsidy amounts. If these adjustments are not accounted for, taxpayers may face an unexpected tax bill or miss out on additional credits.

Failure to Attach or Provide Form 8962

If Form 8962 is not included with a tax return, the IRS will place the filing on hold and issue a Letter 12C requesting the missing documentation. This delay can be frustrating for those expecting a refund, as the IRS will not process the return until the form is received and reviewed. Taxpayers who fail to respond risk having their return adjusted, potentially resulting in the disallowance of the Premium Tax Credit and a higher tax liability.

Some taxpayers may not realize they need to file Form 8962 because they did not personally receive advance payments of the Premium Tax Credit. However, if they were listed on a Marketplace policy where APTC was applied—such as being a dependent on a parent’s plan or part of a shared policy allocation—they are still required to reconcile the credit. This often leads to confusion, particularly when multiple tax filers share coverage and must allocate the credit appropriately. Failing to properly divide the credit can result in IRS inquiries and adjustments.