PTC & PAS

"The software says the taxpayer is ineligible for the PTC because the taxpayer did not receive advance premiums on 1095-A" Can you post the exact diagnostic message?  What you wrote makes no sense, since advance payments of any credit do not determine ultimate eligibility for the credit - whether the (now defunct) Advance EIC, the recent advance payments (EIPs) for the Recovery Rebate Credit, or the APTC/APAS  for the corresponding credits. There is also a repayment cap for PAS.  Was the box checked on Form 3895 that the cap may not apply? If the taxpayer was not even above 100% of federal poverty level, shouldn't they have been on Medi-Cal instead of the Covered CA exchange?

Form 8962, line 5 is less than 100% and Interview Form IRS 1095-A, Box 134 has been left blank.  The taxpayer in not eligible for the premium tax credit.  (35136)   Which makes since because the taxpayer per Form 8962 Instructions you may qualify for the PTC if your household income is less than 100% of the federal poverty line and you meet all of the following requirements.  

• You or an individual in your tax family enrolled in a qualified health plan through a Marketplace.
• The Marketplace estimated at the time of enrollment that your household income would be at least 100% but not more than 400% of the federal poverty line for your family size for 2020.
• APTC was paid for the coverage for one or more months during 2020.
• You otherwise qualify as an applicable taxpayer (except for the federal poverty line percentage).

  CA Form 3849 is still calculating the Annual federal PTC amount as 100% of the annual enrollment premiums.  It doesn't seem correct to me since the taxpayer is not eligible for the PTC, and I am wondering if I am missing something?   Yes, the box is checked on Form 3895 that the cap may not apply.   I believe the fact that the taxpayer could have been on Medi-Cal instead of Covered CA for this instance is irrelevant.  For CA I believe the income threshold is at or below 138% of the federal poverty level.

It's not crystal clear from what you've presented so far, but I'm going to assume your taxpayer received APAS (only), no APTC.  Now, why was that?  Wouldn't they have to estimate their income at CoveredCA to be between 400% and 600% of FPL to get that result? I do agree that you have described an exception on the federal side where the receipt (but not the amount) of APTC received does affect eligibility for the PTC.  I think this provision was added to help applicants who sincerely made a mistaken estimate of the AGI, although obviously it could be subject to deliberate abuse (by someone who didn't want to go on Medi-Cal so they over-estimated their income). But to your question "Do you qualify for the PTC if you received advanced PAS?",  I still say the receipt of APAS has no bearing on eligibility for PTC -- after all the federal tax law does not take any notice at all of CA tax law in this area. I considered two scenarios similar to what you present:

1. I set up a test return in my software (UltraTax) where the taxpayer is at 93% of FPL and received $100 of APTC.  Form 8962 does correctly show they are eligible for full PTC in this case, and California Form 3849 does not calculate. This seems correct to me, although it is not the scenario you are asking about.
2. Then, I removed the $100 of APTC and put in $100 of APAS instead.  Now, Form 8962 does not calculate (no PTC, similar diagnostic to yours), and Form 3849, as you describe in your scenario, nevertheless does show an amount for PTC thereby drastically reducing the available PAS (and possibly requiring a payback of excess).

While this may not seem right, I have examined the instructions and believe that the CA form instructions are being correctly followed by the software. So what to do?  Well, you could always take the position that the form instructions don't accurately reflect the CA tax law, but you'd have to research that further. In which case, override the PTC amount calculated on Form 3849 and see if FTB will accept it. Or, the taxpayer may just have to live with the result. The fact that they are below 100% (or as you state, 138% for CA) of FPL is in fact very relevant.  At that income level, they are not supposed to be eligible for any credit (or advance payment of the credit) at all, either state or federal.  So although the way the form calculates doesn't look right, maybe it does indeed come up with the correct result in the end.  CA does not seem to provide the "free pass" exception that federal does (the one you described), and there is no a priori reason why they necessarily should.  And remember, CA PAS isn't even supposed to be available at all unless the taxpayer was ineligible for federal PTC owing to being over 400% of FPL.  Anything below 400%, as far as CA is concerned, is for federal side to handle. I'd go back to my initial comment in this post:  how did the taxpayer go from estimating over 400% of FPL for income, to ending up below 100%?  That seems like far too much of a gap to be explained simply by using rounded numbers for the estimate.