If you get help paying health insurance premiums through the Affordable Care Act's premium tax credit (PTC), a major repayment rule changes for tax year 2026 that could sharply increase your tax bill if you don't plan ahead. Beginning with tax year 2026, taxpayers who received advance payments of the premium tax credit (APTC), and turn out to have received more than they were eligible for, will generally have to repay the full excess on their federal return --- there is no longer a repayment limit for many lower‑ and middle‑income taxpayers. This article explains how reconciliation works, what changed for 2026, why it matters, and practical steps you can take to avoid an unexpected tax liability.

Quick Background: How APTC and reconciliation work:

• The premium tax credit is a refundable credit to help eligible taxpayers pay Marketplace health insurance premiums. You can either take the credit when you file your return, or have it paid to your insurer to lower your monthly premiums (those advance payments are called advanced premium tax credit, or APTC). Most taxpayers choose the latter method.

• At tax time you must reconcile the APTC paid on your behalf with the actual credit you're allowed based on your final household income and family size. That reconciliation is done on Form 8962 and attached to your Form 1040.

• If the APTC paid during the year exceeds the PTC you are actually allowed, you must repay the excess as additional tax on your return. Historically there were repayment caps for taxpayers with household incomes under 400% of the federal poverty line (FPL), which limited how much you might have to repay in many cases. For years 2021 through 2025 and as part of Covid relief, taxpayers with household incomes above 400% of the FPL were also relieved of having to pay a penalty when their APTC exceeded their PTC.

• What Changed for 2026: For tax years before 2026, taxpayers with household incomes under certain percentage thresholds of the federal poverty line benefited from statutory repayment caps that limited the amount they had to pay back if APTC exceeded the allowable PTC. Beginning with tax year 2026, the law requires taxpayers to repay the entire excess APTC; the previous caps do not apply going forward. This change can substantially increase the worst‑case repayment amount for many taxpayers who underestimated income during the year and received a larger APTC than their final eligibility supports.

Why This Change Matters:

• Bigger Surprise Tax Bills: Where prior law could limit a repayment to a few hundred or a couple thousand dollars for many lower‑income taxpayers, the 2026 rule can require full repayment of the difference between APTC paid and PTC allowed. That could be several thousand dollars for families with substantial APTC.

• Greater Importance of Accurate Income Estimates: If you overestimate how much you'll earn, you might reduce APTC and lose an immediate benefit; if you underestimate income, you'll receive more APTC during the year and face full repayment later. With no cap, the cost of underestimating income is higher.

• Possible Underpayment Penalty Exposure: A large, unexpected tax balance resulting from excess APTC repayment can also raise the risk of underpayment penalties if you did not have sufficient withholding or estimated tax payments.

• Filing and Documentation Still Required: If you or someone in your tax family was enrolled in Marketplace coverage and APTC was paid, you must file a return for that year and attach Form 8962 to reconcile the APTC with the credit you may be allowed.

An illustrative Example Scenario --- prior law (pre‑2026) vs. 2026 rule:

• Maria and Luis file a joint return for 2025. During the year, the Marketplace paid $4,000 of APTC to Maria and Luis's insurer based on an income projection they gave when enrolling.

• At year end, their actual household income is higher than projected, and their allowable PTC based on actual income is only $1,500.

• Excess APTC equals $4,000 − $1,500 = $2,500.

Under the pre‑2026 repayment rules (example for context), Maria and Luis might have been limited to a maximum repayment amount based on their household income bracket and filing status, which could have capped their repayment at a lower dollar amount (for example, $1,950 in some 2025 scenarios). The cap meant they would not have to repay the full $2,500 excess in many cases.

Under the 2026 rule, however, Maria and Luis will be required to repay the entire $2,500 excess as additional tax on their 2026 return (assuming the same facts applied to tax year 2026) --- the prior cap would not shelter them from the full repayment.

Practical Steps to Reduce the Risk of a Large 2026 Repayment

1. Update Marketplace income estimates promptly and throughout the year

2. Err on the side of lower APTC if you're unsure

3. Increase withholding or make estimated tax payments

4. Monitor life events and report changes

5. Keep careful proof and check Form 1095‑A

6. Consult a tax professional if you have complex or changeable income

If You Face An Unexpected Repayment:

• Don't Ignore It: the excess APTC is reported as tax on your return and must be paid or arrangements made with the IRS if you cannot pay in full.

• Consider Payment Options: the IRS offers installment agreements and pay‑over‑time options for taxpayers who can't pay a balance in full. There are also provisions for requesting an extension of time to pay in some circumstances.

• Check Possible Relief: In very limited circumstances where there was erroneous information from the Marketplace, you may have grounds to challenge the APTC amounts or seek corrections with the Marketplace or through an amended return if a 1095‑A was wrong. Act quickly if you believe an administrative error caused the problem.

Common Questions:

Question: What if my income increased unexpectedly late in the year?

Answer: Report the change to your Marketplace as soon as you can. If the change occurs after months of APTC having already been paid, you will likely face reconciliation and, beginning 2026, full repayment of any excess APTC. To reduce future exposure, consider increasing withholding or making estimated payments.

Question: If I repay excess APTC, can I get relief?

Answer: Repayment is treated as tax on your return. Relief is limited and generally requires proof that the Marketplace made an error or that extraordinary circumstances apply. If you believe relief is justified, consult this office promptly.

To Protect Yourself From a Surprise Tax Bill:

• Keep your Marketplace income estimates current.

• Report life and income changes promptly to the Marketplace.

• Consider reducing APTC in favor of claiming more credit on your tax return if your income is uncertain.

• Increase withholding or make estimated payments if you expect to owe money.

This change puts more responsibility on taxpayers to manage their Marketplace enrollments and tax planning during the year. If you rely on APTC, take steps now to avoid an unexpected repayment in 2026. If you have questions about your specific situation, contact this office for assistance.

For many taxpayers, receiving a tax refund is the final step of filing season. Once the IRS accepts the return, most people assume their money will arrive within a few weeks.

That assumption may no longer be safe.

During the most recent filing season, many taxpayers who were expecting paper refund checks instead received IRS Notice CP53E. Rather than immediately issuing the refund, the IRS asked these taxpayers to provide direct deposit information. The notice gave recipients 30 days to respond. If they chose not to provide banking information—or simply did not respond within the allotted time—the IRS generally resumed processing the refund as a paper check, a step that could add another six weeks or more to the waiting period.

For some taxpayers, the result was a refund delay approaching two and a half months.

The issue has drawn attention because it raises an important question: Should taxpayers who prefer not to use direct deposit have to wait months longer to receive money that already belongs to them?

How the Delay Happens

The process is relatively straightforward.

After processing a return, the IRS issues a CP53E notice instead of mailing a refund check. The notice requests direct deposit information and provides the taxpayer with 30 days to respond.

If the taxpayer supplies valid banking information, the refund can generally be issued electronically. If the taxpayer does not respond—or simply prefers to receive a paper check—the IRS eventually mails a refund check through its normal paper check process.

Unfortunately, that paper process can add several additional weeks before the refund is actually received.

For taxpayers who rely on their refunds to pay bills, replenish savings, reduce debt, or fund planned purchases, the delay can create real financial stress.

Why This Matters

Many taxpayers intentionally overpay throughout the year because they prefer receiving a refund rather than facing a balance due.

Many households budget around the expectation that their refund will arrive within a reasonable period after filing. When that timetable unexpectedly stretches from a few weeks to more than two months, it can disrupt cash flow, delay financial decisions, and create unnecessary uncertainty.

For some families, the refund is used to catch up on bills. Others contribute it to retirement accounts, emergency savings, or college funds. Small business owners may rely on the refund to improve seasonal cash flow or replenish working capital.

A delayed refund is more than an administrative inconvenience. It can become a real financial issue.

Who May Be Most Affected?

While many taxpayers already use direct deposit, millions still receive paper refund checks for legitimate reasons.

Some taxpayers simply prefer not to provide banking information.

Others may not maintain traditional bank accounts. Older taxpayers may have established routines that rely on paper checks. Some taxpayers have experienced bank account fraud or identity theft and are understandably cautious about providing financial information electronically. Others may have recently changed banks or closed accounts and prefer to avoid potential deposit problems.

These taxpayers should not assume their refund will arrive as quickly as it has in prior years.

Is This the Direction IRS Refunds Are Heading?

The IRS has made no secret of its goal to increase electronic payments. Direct deposit is generally faster, less expensive, and more secure than mailing paper checks.

Most taxpayers would agree that electronic refunds make sense.

The concern is not with encouraging direct deposit.

The concern is whether taxpayers who legitimately choose paper checks should experience substantially longer delays simply because they exercise that choice.

Taxpayers should be aware that refund processing continues to evolve, and procedures that were routine a few years ago may now produce different results.

What Should You Do If You Receive a CP53E Notice?

If you receive a CP53E notice, do not ignore it.

Read the notice carefully and determine whether providing direct deposit information makes sense for your situation. If you are uncertain whether the notice is legitimate or are unsure how responding could affect your refund, contact our office before taking action.

The Bottom Line

The recent attention surrounding CP53E notices is about more than one IRS letter.

It highlights how changes in IRS procedures can directly affect taxpayers’ cash flow, financial planning, and expectations.

For taxpayers who rely on paper refund checks, understanding these changes may prevent months of unnecessary waiting. For everyone else, the issue serves as a timely reminder that refund strategy, withholding, and cash flow deserve periodic review.

Tax planning is about much more than preparing a return. It is about making sure your tax strategy supports your financial goals throughout the entire year.

If you have questions about how your refund is issued, whether your withholding still makes sense, or how recent IRS procedural changes could affect you, now is an excellent time to schedule a tax planning meeting with our office. A proactive review today may help you avoid unnecessary delays—and uncover planning opportunities that extend well beyond your next refund.

If you’re planning a move—or you already split time between two states—you should understand the term domicile. Domicile is one of those legal concepts that can quietly change your tax picture in big ways. It helps decide which state can tax you on all your income, which state’s estate rules apply when you die, how community-property rules treat income with a spouse, and even whether you qualify as a bona fide resident for the foreign earned income exclusion. The good news: domicile is mostly about facts you can document. The better news: with a little planning and good recordkeeping, you can significantly reduce tax risk. This article explains what domicile is, how it differs from other residency tests, the practical evidence courts and tax agencies look for, and a step-by-step checklist to protect your position.

What is Domicile?

Domicile is your permanent legal home—the single place you intend to live for an indefinite or unlimited period and to which you intend to return when absent. Unlike a mailing address or where you happen to spend most of your days in a given year, domicile is a legal conclusion based on both intent and conduct. A person can only have one domicile at a time, even if they maintain houses in more than one state.

Key Point: Physical presence alone doesn’t determine domicile. Moving into a new state for a short time without clear intent to remain can leave your old domicile intact. Conversely, a brief but genuine move with intent to stay can establish a new domicile quickly in some circumstances.

How Domicile Differs from Other Residency Tests

States and federal tax rules use several different tests that are easy to confuse:

• Domicile (Common Law): Your permanent legal home (intent + conduct). Only one domicile at a time.

• Statutory Residency/Day-Count Rules: Many states use a day-count (commonly 183 days) or a combination of “permanent place of abode + 183 days” to determine tax residency for the year, regardless of domicile.

• Federal Tax Residency for Aliens: Tests like the green card test and Substantial Presence Test are separate statutory rules for noncitizens and do not equate to common-law domicile.

Because these tests are different, you can be domiciled in State A while also being a statutory resident of State B if you spend enough days there. That creates potential double-filing and taxation unless carefully planned and documented.

Why Domicile Matters for Taxpayers

• State Income Tax: Most states tax domiciliaries on worldwide income. If you’re domiciled in State X, that state expects a full resident return, even for income earned elsewhere.

• Part-Year Status: If you change domicile during the year, most states treat you as a part-year resident and apportion income between resident and nonresident periods. The exact date you changed domicile is often heavily contested in state audits.

• Nonresident Source Taxes: States typically tax nonresidents only on income sourced to the state—wages earned there, rents on in-state real estate, business income, or gains from sale of in-state property.

• Federal Issues: Domicile can influence whether you qualify as a bona fide resident for the foreign earned income exclusion (FEIE) when you work overseas, because the bona fide residence test looks to intention to make a foreign country your home.

• Estate and Gift Tax: Domicile is important for determining which state’s estate or inheritance taxes apply, if any, and can be a focal point when a decedent moved shortly before death.

• Community Property and Spouse Issues: The characterization of income as community or separate property often depends on spouses’ domiciles and applicable state law.

What Courts and Tax Auditors Look For

Objective, contemporaneous evidence. Because domicile is a question of intent proved by conduct, agencies and courts evaluate the totality of the facts. No single item is dispositive—collect them all and keep dates clear. Useful evidence includes:

• Home Occupancy: Closing statements, lease, move-in dates, utility start and stop bills, photographs showing you lived in the new home.

• Family Location: Where your spouse/partner and dependent children reside; school enrollments; pediatrician or other medical records.

• Official Registrations and IDs: Voter registration and voting records, driver’s license or state ID issuance, vehicle registration.

• Tax Filings and Addresses: Address used on your federal and state returns, payroll withholding, and 1099s.

• Employment and Business Ties: Employer transfer letters, principal place of business, business registrations, professional licenses.

• Financial Ties: Primary bank accounts, safe-deposit boxes, mortgage or loan documents.

• Social and Community Ties: Church membership, club memberships, subscriptions, local volunteering.

• Actions Severing Old Ties: Sale or long-term rental of prior residence, closure of local bank accounts, cancellation of memberships.

• Estate Planning Updates: Revising wills, trusts, beneficiary designations and filing them where appropriate.

Special Rules and Common Exceptions

• Rapid Domicile Establishment: In estate and gift tax contexts, a person may quickly acquire domicile if they move and show no definite present intent to leave.

• Military and Certain Government Personnel: Special protections often preserve a prior domicile despite moves. The Servicemembers Civil Relief Act (SCRA) protects military members from losing or acquiring domicile solely due to change-of-station orders. Federal laws (MSRRA and VAEIA) let a civilian spouse elect to use the servicemember’s domicile for state tax purposes in many situations.

• Noncitizens: Don’t confuse statutory tax residency tests for aliens with domicile; they’re analytically separate and have different consequences.

Common Audit Issues

Auditors commonly challenge the claimed effective date of a domicile change. Typical red flags include:

• Inconsistent dates across records (e.g., driver’s license updated after tax filing date).

• Retention of strong ties to the old state—especially voter registration, vehicle registration, and bank accounts.

• Failure to occupy the purchased home as your primary residence.

• Lack of contemporaneous documentation (e.g., collecting evidence only after an audit starts).

Practical Checklist for Changing Domicile

If you intend to change your domicile and want to reduce audit risk, act deliberately and create contemporaneous records. Steps to follow:

• Create a dated timeline: Document every relevant event: move date, property sale or lease, employment change, family moves, and any major actions with exact dates.

• Update official records promptly: Apply for a driver’s license and state ID in the new state as soon as you establish residency there. Register to vote and actually vote in the new state. Register vehicles where required. Update professional licenses if required.

• Make your new home your primary residence: Move personal belongings and occupy the home. Start utility service in your name. Use photographs, receipts, and service start dates to show occupancy.

• Change financial and legal ties: Move primary bank accounts and close old local accounts when practical. Update beneficiary designations, wills, and trusts to reflect new domicile.

• Shift social and community ties: Join local organizations, churches, and clubs; maintain membership records and dates. Enroll children in local schools; keep enrollment and medical records.

• Sever ties to the old domicile: Sell or rent the former residence (long-term leases are stronger evidence than occasional rentals). Cancel local club memberships or transfer them.

• Update tax and employment records: Update your address with your employer’s payroll department and adjust withholding to reflect the new state. File part-year returns when appropriate and be consistent about the claimed date of domicile change.

• Keep contemporaneous, organized documentation: Maintain a one-page chronology and a file of exhibits (tabbed and dated) for each relevant year. Draft a short, signed contemporaneous declaration of intent to make the new state your permanent home.

Practical Tips and Final Thoughts

• Consistency Matters: Conflicting dates or addresses in different documents are a red flag. Make sure your driver’s license, voter registration, tax returns, and employer records tell the same story.

• Be Mindful of Statutorily Based Residency Rules: Even if you change domicile, you can still trigger tax obligations in other states if you spend enough days there.

• Don’t Ignore Estate and Community-Property Implications: A move late in life, or different domiciles between spouses, can create complex tax and property issues.

• When in Doubt, Consult: Domicile disputes are fact-intensive and often litigated. If your circumstances are complicated (e.g., cross-border moves, multi-state income, military service, or imminent estate issues), contact this office for guidance before engaging with an auditor.

Bottom Line

Domicile is about where you truly intend to make your home—not just where you sleep a few nights a year. Because it is decided by the totality of your actions and documented intent, proactive planning and thorough, contemporaneous recordkeeping are your best defenses. If you’ve moved or plan to move, follow the checklist above, keep clear records, and coordinate changes to IDs, financial accounts, tax withholding, and estate documents as soon as practical. Those steps will help you minimize surprises and be ready to defend your chosen domicile if a tax agency asks questions.

If you are contemplating a move it may be appropriate to consult with this office in advance.

For many business owners, compensation starts as a practical question: what is the right amount to pay myself, and how do I keep the business running efficiently? That is a reasonable place to begin. The mistake is assuming the answer, once set, should stay the same forever.

That assumption is especially common for S corporation owners. When a business first elects S corporation status, owner compensation is often set with good intentions: enough to support compliance, low enough to preserve cash flow, and simple enough to administer. But businesses do not stand still. Revenue changes. Profitability changes. The owner’s role changes. What made sense when the election was made may no longer reflect the business today.

Reasonable compensation should be viewed as part of an ongoing tax and business planning process, not just a payroll setting.

Why Many Owners Oversimplify the Issue

A common pattern develops in closely held businesses. The owner and advisor establish a salary early on, usually when the S election is made or shortly thereafter. Then the business grows, the owner’s responsibilities expand, and profits rise. Yet the salary remains unchanged.

That happens for a few reasons. First, once payroll is running smoothly, there is little pressure to revisit it. Second, owners naturally focus on the bigger operational decisions and may not think of compensation as something that needs periodic review. Third, many people assume the goal is simply to find a salary that feels “safe” and leave it there.

The problem is that a compensation amount chosen for convenience can become disconnected from the way the business actually operates. That is why reasonable compensation should be revisited periodically. It is not a number to set once and forget. It is part of the ongoing financial picture of the business.

Why the IRS Pays Attention

The IRS pays attention to owner compensation for a straightforward reason: shareholder-employees cannot simply replace wages with distributions. If an owner is actively working in the business, part of what the business pays that owner should be treated as wages, not all as pass-through profit.

This distinction matters because wages are subject to payroll taxes, while distributions generally are not. That creates a natural incentive to minimize salary and maximize distributions. The tax rules do not allow compensation to be set solely by tax preference. They require that the pay for services be reasonable in light of the facts and circumstances.

The practical takeaway is not to become fearful of the rules. It is to recognize that compensation should be thoughtful, defensible, and tied to the owner’s actual role in the business.

Look Beyond Payroll Tax Savings

It is easy to view owner compensation through a narrow lens. If the question is only how to reduce payroll taxes, the answer may seem obvious: keep salary as low as possible and take the rest as distributions. But that approach is too simplistic for a real business.

Payroll tax savings matter, of course. But compensation decisions also affect other important planning areas, and those considerations often pull in different directions.

For example, wage levels can affect retirement planning. Many retirement strategies are tied directly or indirectly to compensation. A salary that is too low may reduce the ability to make meaningful retirement contributions or limit access to certain benefits.

Cash flow is another factor. A business may be profitable on paper but still need careful cash management. Raising wages increases payroll outlays and can affect withholding, estimated taxes, and working capital.

There is also the question of business maturity. A young company and a stable, established company do not call for the same compensation approach. The compensation strategy should fit the stage of the business, not just the tax theory.

Compensation Should Change as the Business Changes

One of the clearest signs that a compensation review is overdue is when the business has changed significantly, but the owner’s salary has not.

Consider a common example. An owner starts a service business with no staff, does nearly everything personally, and sets a modest salary to match the company’s early cash flow. Over the next few years, the business grows steadily. Revenue doubles. Profitability improves. A team is hired. Systems are put in place. The owner now spends less time on day-to-day delivery and more time managing employees, reviewing strategy, and maintaining client relationships.

If that owner continues paying the same salary that made sense three years earlier, the number may no longer reflect the owner’s actual role. This kind of drift is common because it happens gradually. That is exactly why periodic review matters.

Documentation Matters More Than Many Owners Realize

A thoughtful compensation decision should be supported by documentation. That does not mean creating a formal legal file or adding unnecessary complexity. It means having a clear record of the factors that support the salary chosen.

Useful documentation often includes the owner’s duties, the time devoted to the business, the scope of responsibility, and how the owner’s role compares with others in the market. Industry compensation data can be helpful, especially when paired with an understanding of the business’s size, location, and structure.

This documentation serves two purposes. First, it helps the owner and advisor make a better decision. Second, it creates support if the compensation is ever questioned.

A Compensation Review Often Leads to Better Planning

The most valuable thing about a compensation review is that it rarely stands alone. Once the salary is reviewed in the context of the business, other planning questions usually come into focus.

A business owner may discover that estimated tax payments need to be adjusted because profits have shifted. Another owner may realize that retirement contributions are not aligned with current earnings. A third may see that the way income is flowing through the business could be improved with a different mix of salary, distributions, and benefits.

That is why compensation should not be treated as an isolated compliance issue. It is often the entry point into a more meaningful tax planning discussion.

This is especially true during mid-year and year-end planning. Those are the moments when business owners have enough current information to make informed adjustments, rather than simply reacting after the year is over.

The Right Question Is Not “What Is the Lowest Salary?”

The better question is, “What compensation strategy makes sense for this business right now?”

That question leads to a more useful conversation because it acknowledges the realities of the business, the owner’s role, the tax environment, and the company’s future plans. It also reflects the fact that reasonable compensation is not static. It should evolve as the business evolves.

For some owners, that means increasing salary because the business has grown and the owner’s role is more substantial than before. For others, it means revisiting the balance between wages and distributions in light of retirement goals, employee growth, or cash flow needs.

The point is not to chase the lowest possible salary. The point is to choose a compensation approach that supports the business, holds up under scrutiny, and fits into a broader tax plan.

Final Thought

Reasonable compensation is not a number you set once and forget. It is a strategic decision that should evolve as your business evolves.

If your business has changed in the last year, your compensation strategy may need to change as well. A compensation review is often the best place to start, especially when it is part of a broader mid-year or annual tax planning meeting.

If your business has changed in the last year, schedule a mid-year review with this office now to review your compensation strategy.