How is ACA Subsidy Calculated for Couple with One on Medicare?

[bobandsherry]

I'm sure this has been asked and answered before, tried a search, didn't find thread - probably operator error

Anyways, I was out to lunch today with a person I used to work with. We got to talking about cost of health care. Her husband is on Medicare and drawing SS, she is retired but still not old enough for Medicare or SS.

She was told by an "insurance woman" that ACA subsidy only available if they have $42K of total income, including SS. I would have thought that MAGI limit for ACA subsidy would still be based on 400% FPL or roughly $67K.

So question I have is, with one person on Medicare and SS how is household income calculated (I'll assume SS is included) and what is the MAGI limit for ACA subsidy?

TIA

 

[SecondCor521]

Assuming it's a MFJ couple, their household income for ACA purposes is pretty much the AGI on line 7 of their Form 1040.

The taxable portion of their SS would be on line 5b of their Form 1040.

The AGI limit is 400% of FPL. They can look here to determine what it is for where they live, which year, and their family size:

https://thefinancebuff.com/federal-poverty-levels-for-obamacare.html

She can probably get a good estimate of her premium tax credit by going to her local exchange and putting in their income and listing her and her husband, but indicate that she only needs coverage for herself. In my state, the husband would be referred to as being listed "for tax purposes only" - that is, he increases the size of the household for determining the subsidy, but isn't needing insurance for whatever reason (in this case because he has coverage through Medicare).

 

[MRG]

+1

That is our situation and this is how it works.

Assuming it's a MFJ couple, their household income for ACA purposes is pretty much the AGI on line 7 of their Form 1040.

The taxable portion of their SS would be on line 5b of their Form 1040.

The AGI limit is 400% of FPL. They can look here to determine what it is for where they live, which year, and their family size:

https://thefinancebuff.com/federal-poverty-levels-for-obamacare.html

She can probably get a good estimate of her premium tax credit by going to her local exchange and putting in their income and listing her and her husband, but indicate that she only needs coverage for herself. In my state, the husband would be referred to as being listed "for tax purposes only" - that is, he increases the size of the household for determining the subsidy, but isn't needing insurance for whatever reason (in this case because he has coverage through Medicare).

 

[gauss]

My understanding is that:
- your family size is 2 persons for the whole year if there are 2 people listed on your tax return
- the household income would include any non-taxable portion of SS (ie the non-taxable portion of any SS would need to be added back into the AGI so the above two posts are a bit misleading unless the non-taxable SS is very small
- the 400% FPL for a 2 person household is ~67K regardless of who is eligible for an ACA plan.
- Eligibility for ACA plans and subsidies are considered a month at a time.

Out of pocket contribution for ACA plans would be between 2% and 10% of ACA MAGI (depending on if one is closer to 100% of FPL or 400% of FPL).

IRS Form 8962 and the associated instructions will manually walk you through this.

-gauss

 

[bobandsherry]

Assuming it's a MFJ couple, their household income for ACA purposes is pretty much the AGI on line 7 of their Form 1040.

The taxable portion of their SS would be on line 5b of their Form 1040.

The AGI limit is 400% of FPL. They can look here to determine what it is for where they live, which year, and their family size:

https://thefinancebuff.com/federal-poverty-levels-for-obamacare.html

She can probably get a good estimate of her premium tax credit by going to her local exchange and putting in their income and listing her and her husband, but indicate that she only needs coverage for herself. In my state, the husband would be referred to as being listed "for tax purposes only" - that is, he increases the size of the household for determining the subsidy, but isn't needing insurance for whatever reason (in this case because he has coverage through Medicare).

Thanks for confirming what I thought, they are MFJ. She threw me when she said she spoke to "an insurance woman" and was told she had to be $42K or less. I'm assuming that was one of the ACA reps that are to assist people. Or maybe I misunderstood how the couple was to be treated when one was on Medicare. I even suggested that perhaps the $42K was after his SS, she said no it was inclusive of that. I'll have to let her know. Thanks again.

 

[SecondCor521]

^ Sure.

My guess is that she misunderstood the insurance woman or the insurance woman was just plain wrong. Both of those are pretty common in my experience.

 

[Spock]

I'm sure this has been asked and answered before, tried a search, didn't find thread - probably operator error

Anyways, I was out to lunch today with a person I used to work with. We got to talking about cost of health care. Her husband is on Medicare and drawing SS, she is retired but still not old enough for Medicare or SS.

She was told by an "insurance woman" that ACA subsidy only available if they have $42K of total income, including SS. I would have thought that MAGI limit for ACA subsidy would still be based on 400% FPL or roughly $67K.

So question I have is, with one person on Medicare and SS how is household income calculated (I'll assume SS is included) and what is the MAGI limit for ACA subsidy?

TIA

Could be just a terminology mismatch or looking at different lines on the tax form. The 42K figure + MFJ std deduction of 24.4K is pretty close to the 67K figure mentioned.

 

[SecondCor521]

Could be just a terminology mismatch or looking at different lines on the tax form. The 42K figure + MFJ std deduction of 24.4K is pretty close to the 67K figure mentioned.

Good thought, except a 400% FPL of ~$67K plus the MFJ SD of $24.4K would be ~$91K. The SD is subtracted from taxable income to get AGI, not added.

Note that I'm not really sure how Social Security income plays into things with the ACA, so the other poster's comment about that would be a good thing to investigate.

 

[bobandsherry]

Spoke with my friend more today. She confirmed she spoke with a health care insurance agent, supposedly certified by the market place. Perhaps she misunderstood, perhaps not clearly explained - dunno. But she will be reaching out to her accountant, now armed with this information she hopefully she gets better (accurate) info. Thanks to everyone who responded.

 

[Spock]

Good thought, except a 400% FPL of ~$67K plus the MFJ SD of $24.4K would be ~$91K. The SD is subtracted from taxable income to get AGI, not added.

Note that I'm not really sure how Social Security income plays into things with the ACA, so the other poster's comment about that would be a good thing to investigate.

I was suggesting she might have been referring to the tax line after SD (42K) vs. before SD (67K).

 

[SecondCor521]

I was suggesting she might have been referring to the tax line after SD (42K) vs. before SD (67K).

I understand. My point is that the ACA subsidy is determined (more or less - setting aside my comment about how Social Security income is treated) based on "the tax line after SD", meaning that "the tax line after SD" can be up to $67K and still get ACA subsidies.

Ah, but maybe you are saying that "the insurance woman" might have similarly misunderstood and thought that ACA subsidies were determined based on the "before SD" line and not the "tax line after SD". That would make sense.

 

[N02L84ER]

It is also possible the health insurance lady was referring to the 250% of FPL and said cost sharing instead of subsidies.

 

[bobandsherry]

It is also possible the health insurance lady was referring to the 250% of FPL and said cost sharing instead of subsidies.

That could be, and with my friend being new to this, probably then misunderstood what that meant. Thanks

 

[niven]

I understand. My point is that the ACA subsidy is determined (more or less - setting aside my comment about how Social Security income is treated) based on "the tax line after SD", meaning that "the tax line after SD" can be up to $67K and still get ACA subsidies.

No, you cannot use the standard deduction to reduce your ACA income for subsidies.

Also FYI, the full amount of Social Security is used for ACA income calculations, not just the taxable portion.

 

[SecondCor521]

No, you cannot use the standard deduction to reduce your ACA income for subsidies.

Also FYI, the full amount of Social Security is used for ACA income calculations, not just the taxable portion.

Whoops, I just checked and you are correct. ACA income is AGI, which is before the standard (or itemized) deduction, not after. I had AGI and TI mixed up in my head. My mistake.

Apologies to @Spock as well, my comments upthread are incorrect.

 

[GenXguy]

Whoops, I just checked and you are correct. ACA income is AGI, which is before the standard (or itemized) deduction, not after. I had AGI and TI mixed up in my head. My mistake.

Apologies to @Spock as well, my comments upthread are incorrect.

That isn't correct. ACA uses MAGI income to determine eligibility. These can be the same, but that's definitely not always the case. For example, one big difference that will affect a segment of early retirees is that MAGI, for purposes of ACA income, not only includes taxable Social Security benefits that are part of your AGI, but MAGI also includes your untaxable Social Security benefits.

In fact, this is the primary reason I decided to hold off on taking SS benefits until age 65 so that my SS benefits won't affect my eligibility for ACA PCT or CSR, assuming the Medicare age remains at 65 by the time I reach that age so that I can forget about the ACA at that point.

 

[SecondCor521]

That isn't correct. ACA uses MAGI income to determine eligibility. These can be the same, but that's definitely not always the case. For example, one big difference that will affect a segment of early retirees is that MAGI, for purposes of ACA income, not only includes taxable Social Security benefits that are part of your AGI, but MAGI also includes your untaxable Social Security benefits.

In fact, this is the primary reason I decided to hold off on taking SS benefits until age 65 so that my SS benefits won't affect my eligibility for ACA PCT or CSR, assuming the Medicare age remains at 65 by the time I reach that age so that I can forget about the ACA at that point.

You're right. I thought I had made allusions to the "M" part of AGI earlier in this thread but not in my post you quoted. In my case MAGI = AGI, but I realize that's not true for every one.

As always, read and follow the forms and instructions provided by the IRS (except in the very rare cases where the IRS themselves makes an error, and probably even then) or as directed by your professional, trained, competent tax advisor, who should likely be a CPA, EA, or both.