MAGI... What happens if you don't hit the mark?

[SoReady]

Hi,

2017 is my first year on ACA. So last December when ACA wanted to know how much I expected to make this year I said $60k, knowing I would use Roth conversions to adjust to that number. Also, knowing that if I went any higher subsidies disappear, although I'm not sure at exactly what amount that happens.

I'm now in the midst of estimating divs, int, cap gains, etc for the year to determine the Roth conversion amount. But I guess I'm wondering what happens if I undershoot or overshoot by a couple of grand? If I go over a bit, do they claw back part of the premium? If I undershoot do they pay me a check for a bit more that would have been the subsidy for the year?

Bottomline, is I'm wondering what the ramifications are to hitting the mark exactly or not.

Thanks,

Bob D

 

[BeachOrCity]

There is no relief if you exceed 400 percent fpl. So better be under not over if your subsidy is significant.
There are two escape valves after jan 1st for the prev year
1. Use hsa to lower magi if you bought an hsa eligable hc plan
2. Use an ira to lower magi if you have earned income

If you are eligable to use these you can prepare your taxes and then adjust your magi if needed.

If you cant do it via one or two, i suggest you very carefully look at your actuals and make sure you are under leveraging roth ira for spending

 

[scrabbler1]

SoReady, I mentioned in a recent post that I expect to go over the ACA premium subsidy cliff this year. This is due to an unexpectedly large cap gain distribution in a stock fund I own, according to Fidelity estimate which came out about a week ago.


I was always near the max income amount which qualified for a subsidy, so the subsidy was not very big, well under $1,000. But when I plugged in the expected CG distribution over the very rough estimated I had in there originally, the subsidy disappeared and I will also have to repay the part of it I had been receiving as part of the lowered premium I pay every month. If the CG distribution ends up keeping my income just under 400% of FPL (the max to get a subsidy), I will not only get to keep the current subsidy but also get to deduct a few hundred dollars more from my tax bill. That's the cliff.


Hope this helps.

 

[sengsational]

If you fill-out form 8962, it will figure your actual PTC. That's the real tax credit number. The other one was just an estimate. If the sum of credits you actually received was less than the PTC you calculate on the tax form, they give you a credit. If it was more, they take it away. And as BorC says, if your actual PTC goes to zero because you went over 400% FPL, you owe them the whole enchalada.

Just to be complete here, and you don't say if you have a Silver plan or not, but cost sharing on on a Silver plan is a different animal. The cost sharing portion is not part of the PTC calculation, and they do not claw those funds back, no matter what happens to your income, but the premium calculation still works the same way, Bronze, Silver or Gold.

I'd bet that if you used your 2016 tax software, filling it out with 2017 info, it would be close enough for government work. I think we have a few more weeks before the preliminary tax software for 2017 shows up.

 

[FreeBear]

Nothing to add, just thanks to everyone for an informative, clear, and concise discussion.

 

[SoReady]

Yes, thanks everyone for your responses.

We (wife and I) are both on a bronze plan.

I wasn't sure what 400% FPL was, but looked it up. For a family of 2 it is $64,960. I reported to ACA I would make $60k, so seems I have some wiggle room, I guess.

I looked at the form 8962 and my eyes glazed over. I think I will just try to stay close to the $60k mark and not try to go to $64k.

Bob D

 

[SecondCor521]

Yes, thanks everyone for your responses.

We (wife and I) are both on a bronze plan.

I wasn't sure what 400% FPL was, but looked it up. For a family of 2 it is $64,960. I reported to ACA I would make $60k, so seems I have some wiggle room, I guess.

I looked at the form 8962 and my eyes glazed over. I think I will just try to stay close to the $60k mark and not try to go to $64k.

Bob D

It's a minor nitpick (are there other kinds of nitpicks?), but the 400% FPL number for 2017 for a family of 2 is $64,080. The $64,960 number would apply to coverage in 2018.

Conceptually, the numbers are adjusted for inflation and are applied with a one year lag. Some web pages adjust for this one year lag, some don't, and most aren't clear about it.

The clearest info I know of is at:

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

Conceptually, Form 8962 just reconciles the difference between any advance credits you received based on your estimated income and the actual credit you are due. But yeah, it's a heck of a form; it's tied for my least favorite with Form 8606.

 

[SoReady]

Good catch! That is why I love this forum.

I went back to look and yes the web page I was looking t is referring to 2018.

Bob D

 

[ivinsfan]

Ready have you read any of the many ACA threads here? It can get a little complicated reading through all the posts.

You have many options on the table,since you have a bronze plan you might have an HSA option, without W-2 income you will not have the IRA option...you can increase your subsidy by lowering the number below 60. and get the difference paid to you when you file a return. ..just be aware it's literally the death penalty if you go over the cliff.

 

[sheldon cornped]

We went over the cliff this year by virtue of higher income and income that our son will have earned in college as a TA. Our subsidy was $1003/mo for a Silver plan. We were paying 647/mo. So we have to pay back $12k. We filed a life change (higher income) last month on our ACA application. So we are now paying the full $1650/ premium for Nov. and December. Next year at tax time we will file and have to pay back $10k. There is no penalty however.
I have thought about using the one time stop on Soc. Security to lower income, but DW begins her pension (teacher) in Dec. and she can't delay it, so that would cancel out my stopping SS. The same HI this year for the 2 of us is $1947/mo and covers far less. I'll be Medicare eligible in 2019.
Anyone else think planning is about to get much much harder