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ACA credits and Tax refunds
Old 08-25-2014, 10:10 AM   #1
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ACA credits and Tax refunds

Good article here on the potential repayment caps for incomes higher than planned, getting ACA assistance. http://finance.yahoo.com/news/tax-re...115900935.html
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Old 08-25-2014, 11:15 AM   #2
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I'm afraid this is going to be a disaster for some families who perhaps were just under 400% FPL and got some substantial credits and then some overtime income or a raise or a bonus throws them off the Obamacare subsidy cliff. There going to be some really mad taxpayers once that occurs.
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Old 08-25-2014, 11:17 AM   #3
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I'm afraid this is going to be a disaster for some families who perhaps were just under 400% FPL and got some substantial credits and then some overtime income or a raise or a bonus throws them off the Obamacare subsidy cliff. There going to be some really mad taxpayers once that occurs.
I'm not near the cliff, but in that situation couldn't you make a traditional IRA contribution to get you back below the cut off point?
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Old 08-25-2014, 12:02 PM   #4
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I'm not near the cliff, but in that situation couldn't you make a traditional IRA contribution to get you back below the cut off point?
I believe deductions for traditional IRA contributions are added into modified adjusted gross income, so they wouldn't count in computing an ACA subsidy. However, those with a high-deductible policy with health savings account eligibility can reduce modified adjusted gross income by contributing to that account.
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Old 08-25-2014, 12:05 PM   #5
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Before the ACA took effect MA had a similar plan and the issue was always working out your income and the relevant insurance rates, if you went over the income limit by a dollar there was a premium cost cliff.

I'm in favor of change to the US health insurance industry, but connecting your premium payments to work and/or your income level is not a solution I would not have chosen. Even so the ACA has allowed many of us to retire early, but given the choice of a high deductible ACA plan for $200/month with the associated tax issues, uncertainties and forms to fill out and a cadillac plan from my ex employer for $450, I went with the cadillac plan.
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Old 08-25-2014, 12:11 PM   #6
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I'm sort of in this situation. It turns out that our MAGI is going to be a bit more than we estimated when I first applied, probably by about $5,000 since I am working more hours than originally expected, and my wife got a larger raise this year than expected. (This even after including TIRA contributions we hadn't expected to make in the 15% bracket.) But my wife is getting overwithheld by quite a bit, so we figure that the overpayment will just represent the recapture of subsidies in excess of what we should have actually been due. So it's mostly going to be a wash, best as I can tell.
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Old 08-25-2014, 12:13 PM   #7
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I believe deductions for traditional IRA contributions are added into modified adjusted gross income, so they wouldn't count in computing an ACA subsidy. However, those with a high-deductible policy with health savings account eligibility can reduce modified adjusted gross income by contributing to that account.
I had to check. I don't think IRA contributons are added back. See http://laborcenter.berkeley.edu/pdf/..._summary13.pdf

There is a website that suggests IRA contributions are added back but I think it is incorrect. ObamaCare Calculator: Subsidies, Tax Credits, Cost Assistance
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Old 08-25-2014, 12:15 PM   #8
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I had to check. I don't think IRA contributons are added back. See http://laborcenter.berkeley.edu/pdf/..._summary13.pdf

There is a website that suggests IRA contributions are added back but I think it is incorrect. ObamaCare Calculator: Subsidies, Tax Credits, Cost Assistance
We went through this exercise here a few months ago as I recall, and we wound up finding essentially irrefutable evidence -- straight from the IRS, as I recall -- that TIRA contributions do reduce your MAGI for ACA purposes. And anyone who can afford to contribute to both HSAs and TIRAs can double down on the MAGI reduction.
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Old 08-25-2014, 12:28 PM   #9
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We went through this exercise here a few months ago as I recall, and we wound up finding essentially irrefutable evidence -- straight from the IRS, as I recall -- that TIRA contributions do reduce your MAGI for ACA purposes. And anyone who can afford to contribute to both HSAs and TIRAs can double down on the MAGI reduction.
I believe you are correct. I was surprised to find that dividends from "tax exempt" munis ARE added into your MAGI.
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Old 08-25-2014, 12:45 PM   #10
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We went through this exercise here a few months ago as I recall, and we wound up finding essentially irrefutable evidence -- straight from the IRS, as I recall -- that TIRA contributions do reduce your MAGI for ACA purposes. And anyone who can afford to contribute to both HSAs and TIRAs can double down on the MAGI reduction.
Yup. Both HSAs and Traditional IRA contributions come out before the Modified Adjusted Gross Income (MAGI) calculation. As a bonus, HSA contributions do not have to be earned income!

As a bonus bonus, since all HSA contributions are deductible, charging ones annual non-insurance medical expenses (copays, deductibles, and things not covered by insurance like dental visits, eyeglasses, etc) to the HSA makes them all effectively deductions by being paid out of that HSA contribution. You don't have to wait until the bills are more than 10% of your adjusted gross income. (Disregard if your lan was to use the HSA as an investment vehicle. The math for that didn't work out as well for me as just using it to cover medical costs.)
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Old 08-25-2014, 01:29 PM   #11
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As a bonus bonus bonus, if you save the receipts from previous year's medical payments you paid for out of pocket instead of with your HSA, you can at any time deduct these from your current HSA balance tax and penalty free. So it can be used as an investment vehicle and a general emergency fund (once you have some significant bills you have paid in previous years).
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Old 08-25-2014, 03:12 PM   #12
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As a bonus bonus bonus, if you save the receipts from previous year's medical payments you paid for out of pocket instead of with your HSA, you can at any time deduct these from your current HSA balance tax and penalty free. So it can be used as an investment vehicle and a general emergency fund (once you have some significant bills you have paid in previous years).
Just make sure that the bills are for services that date from after the HSA was funded, and that works out fine. (The federal paperwork checkers get all annoyed if bills for services from before the HSA was funded get paid from the HSA.)

I have a special folder for the HSA eligible bills that I will charge against the account some day.
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Old 08-25-2014, 04:01 PM   #13
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For clarification, and please forgive my ignorance .... tIRA contributes reduce MAGI for ACA subsidy purposes. Would t401k contributions ? What about ROTH 401k contributions ?
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Old 08-25-2014, 04:06 PM   #14
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Here's a nice summary chart for determining what is included in MAGI http://laborcenter.berkeley.edu/pdf/..._summary13.pdf

Here is the CRS definition http://fas.org/sgp/crs/misc/R41997.pdf
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Old 08-25-2014, 04:08 PM   #15
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For clarification, and please forgive my ignorance .... tIRA contributes reduce MAGI for ACA subsidy purposes. Would t401k contributions ? What about ROTH 401k contributions ?
Traditional 401K contributions do reduce MAGI... BUT the difference is that you don't deduct T401K contributions because they should not be included in your taxable income on the W-2 to begin with (compared to TIRA contributions which you have to deduct on the 1040). So while they do reduce MAGI you don't take a deduction for them on the tax return.

Roth contributions do not reduce MAGI. That said, qualified Roth *withdrawals* do not hit your MAGI as income, so they can be a part of retirement planning in terms of engineering an appropriate taxable income level.
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Old 08-25-2014, 04:08 PM   #16
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Good article here on the potential repayment caps for incomes higher than planned, getting ACA assistance. http://finance.yahoo.com/news/tax-re...115900935.html
Great article, but I can almost not believe I am reading it correctly. If I seriously under-estimate my income (but do so in good faith) and receive an ACA-subsidy thereby, my penalty is nonetheless "capped" at an amount that may be LOWER than the true cost of my insurance??
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Old 08-25-2014, 04:11 PM   #17
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Great article, but I can almost not believe I am reading it correctly. If I seriously under-estimate my income (but do so in good faith) and receive an ACA-subsidy thereby, my penalty is nonetheless "capped" at an amount that may be LOWER than the true cost of my insurance??
You are, of course, too honest to intentionally do so.

And you would be at the mercy of the IRS in terms of the definition of "good faith".

Also this does not kick in for anyone above 400% of FPL according to the article, but then again, 400% is also the level at which all subsidies should phase out anyway.
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Old 08-25-2014, 04:23 PM   #18
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To be clear, I am not advocating this as a strategy, but I am looking to 2014 tax preparation and I am trying to figure my potential liability because I may have slightly under-estimated income in my ACA application (well below that 400% threshhold in any event).
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Old 08-25-2014, 04:37 PM   #19
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Sorry if I posted some misinformation ... I was going by this Turbotax guide -- but it is for the 2013 tax year, so I guess it's out of date.
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Old 08-25-2014, 04:45 PM   #20
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MGB: No biggee. It happens to most of us. That's why this forum is so valuable - so we can check our information and assumptions with a community looking at the same highly-specialized questions.
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