Tax Return Issues Related To Healthcare Insurance

[ownyourfuture]

**I have an appointment with a CPA this coming Saturday**
In addition to the main issue, which I'll get to next, there was one oddball area with TurboTax this year & I'm curious to know if anyone else experienced it.

My return is fairly simple. My income is a set monthly amount from a private sector defined benefit pension, + dividends, interest, & capital gains from a large taxable brokerage account @ Fidelity. That's it for income. Not sure if it matters, but I reside in Minnesota, & after tax reform was passed, reports stated that tax returns for 2018 could be a nightmare for ’some people’ in high tax states, Minnesota is in that group. I also know that the outgoing governor refused to work with the ‘other side’ & to the best of my knowledge, Minnesota’s tax code was never synchronized with the feds.


Have used TurboTax Deluxe or it’s equivalent since 1999.
Have had a high deductible healthcare plan from Medica, via MNSURE since December 2015.
I also have an HSA account that I started in 2016, & contributed $3,000.00 for 2018

After entering all income & the estimated federal taxes paid, I'm due a refund of $173.00
At this time, the only thing left is the 1095-A (Health insurance marketplace statement) info.
Once that’s entered, the return goes from the aforementioned refund, to owing $5,486.00 (Pay back of all the premium subs I received in 2018)
At this point the problem seems very simple. I made too much money. The perplexing part is, that unless I misunderstand the income limits relating to receiving premium subsidies, it appears I’m under that limit ?

According to this, my MAGI income limit for 2018 was $48,240.00


From the same site: “MNSURE uses modified adjusted gross income to determine the programs & savings you are eligible for. For most people, it's identical, or very close to adjusted gross income, which is a line on your federal tax return”

Here’s a screen capture of my ’tax summary’ showing adjusted AGI of $47,122.00, under the max by $1,118.00

Also note that the $4,400.00 shown behind ‘adjustments to gross income’ is the amount that I ‘allegedly’ contributed to my HSA, I actually only contributed $3,000.00 but on the last return, upped it to that amount to see if it would make a difference. The difference was nominal.





Here’s the oddball issue I ran into. If you look at the ’tax summary’ above. You’ll see a ‘qualified business income deduction’ of $395.00
I’ve never owned a business in my life. Could this have something to with the following questions, which came up after I entered my pension income ?


I answered ’no’ on all of them, but after that the following showed up.


These 2 make it sound as if I received some type of special hurricane distributions in 2016 & 2017. Very weird, considering I live in Minnesota!

Just about forgot. After doing the 1st 2 returns using TT, I purchased similar software from H&R block. Unfortunately, the results were the same. Pretty sure I'm gonna have to pay the piper

 

[Dtail]

Is it possible you have some adjustments which can affect MAGI but not AGI?
The link below lists the composition of MAGI rules.

http://laborcenter.berkeley.edu/pdf/2013/MAGI_summary13.pdf

 

[RunningBum]

Tax exempt interest? It's not taxed but it's added to MAGI.

 

[RunningBum]

From an earlier post of yours:

http://www.early-retirement.org/for...-related-to-tax-reform-90466.html#post2001567

I hold a substantial amount of Columbia Minnesota Tax-Exempt Fund (IMNTX)

This is your issue. The income from that is added to AGI to make MAGI.

Look at Part 1 of Form 8962. That's where MAGI is totaled and you see whether and how much of a credit you get.

The ACA subsidy program has its flaws, but this is one hole they prevented. You can't hide income with non-taxable investments.

 

[cathy63]

I agree that you need to look at form 8962 Part I for an explanation on the ACA premiums. If you do that in the Forms view in TurboTax, you can right click on the AGI in line 2a and select Data Source. You'll see a pop-up like the one below that shows you what numbers it added together to get the total and where they came from, which should clarify things.

The QBI deduction is not related to the disaster relief questions. I also ran into those questions on the two returns I've done with TTax this year and I have no idea why they're asking them. All I can guess is that there's some new special tax treatment for these past distributions in the TCJA and they didn't ask in prior years because it didn't matter, but now it does. It is confusing though.

I suspect that you are getting the QBI deduction because you own a REIT or PTP in your Fidelity account. While you're in TTax Forms mode, look for the pages that start with QBI and you should be able to see what's leading to the $395 deduction.

 

[PaddyMac]

"I suspect that you are getting the QBI deduction because you own a REIT or PTP in your Fidelity account."

My thoughts too. Look at your 1099-B from Fidelity and see if it reports REIT or PTP income.

 

[ivinsfan]

It won't help you this year, but you cut your number too close.

I was on MNSure last year my DH is on Medicare I went on Medicare 10/01.

In our case we still have earned income and my ACA plan is HSA qualified. If I hit an issue we can fund IRA's or fund my HSA. Unfortunately you don't have all those options. Are you on an MNSure plan for 2019...you'll need to be a lot more cautious next year.

 

[scrabbler1]

I agree with RunningBum. If your muni bond fund income (Form 1040, Line 2a) is as small as $1,200, that, when added to your AGI, will push you over the ACA subsidy cliff.

 

[N02L84ER]

If it is not your muni bond fund income, make sure the "Full Year Health Care Coverage" item is checked on page 1 of your 1040 below your SS number.

 

[ownyourfuture]

As always, thanks to all of you.
You guys & gals really know you’re stuff & I really appreciate that you're willing to take the time to share it.

In the original post, I neglected to mention that last fall, I had an unexpected LT-CG of approximately $4,000.00 when Pinnacle Foods was purchased by ConAgra.

The ironic part, is that I was dead set against it from the beginning, & leading up to the vote, practically begged fellow PF shareholders to vote against it.
It didn't work My ‘new’ ConAgra shares were already down around 16.00% a month after the deal, so I sold them. Had I held them, I’d be down just under 35.00%

So in a roundabout way, you could say a deal I was dead set against, played a big part in this. !@#$!@#$
But I digress

My MAGI limit was $48,240 & I ended up @ $48,545



A follow-up question.
I mentioned that I have an appointment to have my taxes done @ H&R Block this coming Saturday
I'm considering canceling it. Since I ‘hypothetically’ maxed out my HSA contribution to $4,400.00 on this return, which didn't make much at all, if any difference, & as far as I know, there's nothing else available for me to knock my income down by at least $305.00 I'm thinking it would be a waste of money to have someone else prepare my taxes when odds are, he's going to come up with the same thing I did.

Agree ?

Unrelated question: On my 1099-R (Pension) In box 7 (Distribution Code) The number has always been (2-Early distribution (except Roth), exception applies)
Why wouldn't it simply be number 7 (normal distribution) ?

Thanks

 

[RunningBum]

That LTCG would've shown up as part of your AGI in the screen shots of your original post.

You are apparently $305 over the limit but taking an additional $1400 HSA contribution didn't help? I don't buy that. You are missing something. I would keep the appointment and let someone take a complete view of your tax situation. Though I don't know that a (probable) seasonal H&RB tax preparer really has the knowledge to do anything other than plug numbers into forms. Not having dealt with them, I leave it to others who have to advise on this vs. a full-time tax pro.

Or are the numbers in this post including the full $4400 HSA deduction? Are you married or over 50 or whatever the age is that you can make a catch up contribution? How about an IRA?

 

[RE2Boys]

I suspect that you are getting the QBI deduction because you own a REIT or PTP in your Fidelity account. While you're in TTax Forms mode, look for the pages that start with QBI and you should be able to see what's leading to the $395 deduction.

The QBI income would be reported on the Fidelity 1099Div, line 5, Section 199A dividends.

 

[ownyourfuture]

Or are the numbers in this post including the full $4400 HSA deduction? Are you married or over 50 or whatever the age is that you can make a catch up contribution? How about an IRA?

Yes, the numbers in this post include the full $4400 HSA deduction. (I'm 57 -Single)

Line 2 'adjustments to income'

As far as an IRA, I do have one, but when you're single & have zero earned income, you aren't allowed to contribute. There are certain exceptions, but only if you're married.

 

[ownyourfuture]

The QBI income would be reported on the Fidelity 1099Div, line 5, Section 199A dividends.

Yes, that's correct. I own 2 REIT's

 

[pb4uski]

Are you absolutely, positively sure that you have your basis in Pinnacle Foods correct? That can get a little tricky.

 

[fh2000]

At least you received the $4000 capital gain. Use that to pay the subsidy back, so it is not a total loss.

Your situation reminds me how important it is to do mock returns before the year end. If there are few hundred dollars over, I would sell a lost investment and make a capital loss and reduce income by (-$3000).

 

[ownyourfuture]

Are you absolutely, positively sure that you have your basis in Pinnacle Foods correct? That can get a little tricky.

Here's screenshots for 2018 LT & ST cap gains. I download directly from Fidelity into TurboTax and I've never had a problem before,

 

[ownyourfuture]

At least you received the $4000 capital gain. Use that to pay the subsidy back, so it is not a total loss.

Your situation reminds me how important it is to do mock returns before the year end. If there are few hundred dollars over, I would sell a lost investment and make a capital loss and reduce income by (-$3000).

See the next post after yours. I tried to do what you suggested by taking an almost $3000.00 loss on Kraft/heinz. It just wasn't enough.
And I certainly agree, especially now, that doing a mock return before the end of the year is a great idea.

 

[pb4uski]

Hindsight is 20/20.... you could have donated some of those Pinnacle Foods shares to charity before the conversion occurred to avoid the gain that put you over.

 

[MichaelB]

See the next post after yours. I tried to do what you suggested by taking an almost $3000.00 loss on Kraft/heinz. It just wasn't enough.
And I certainly agree, especially now, that doing a mock return before the end of the year is a great idea.

Don’t be too hard on yourself. It’s very easy to miss the MAGI, especially when you have taxable investment income that can make unexpected distributions up to the last day of the year.

This problem does not go away once you turn 65 and go on Medicare. It continues, as Medicare B & D premiums are also based on MAGI.

 

[ivinsfan]

I agree he shouldn't be too hard on himself and a mock return is fine. The real value comes in looking at his income level and seeing if there is anything he can do to lower his MAGI for 2019. Because as he saw this year stuff happens.

Now if he needs all that money for his budget he doesn't a lot of choices, in another burst of hindsight if he'd known this before the end of 2018 and knew he was going over the cliff anyway he could have taken more income in 2018 for only the tax owed. This might have put in a better MAGI position going forward.

 

[ivinsfan]

Don’t be too hard on yourself. It’s very easy to miss the MAGI, especially when you have taxable investment income that can make unexpected distributions up to the last day of the year.

This problem does not go away once you turn 65 and go on Medicare. It continues, as Medicare B & D premiums are also based on MAGI.

That's true but it's nowhere near as severe as his punishment for missing the ACA cliff....

 

[RunningBum]

I would want to make sure I understood the difference in AGI and MAGI and make sure it's legit.

Other than that, I'd just say to make sure to learn from it for future years. I keep a spreadsheet to track all of my income WRT to the cliff, and even then it's hard because of the uncertain addition to VTIAX due to foreign taxes paid that isn't included in dividend projections. If I got a late CG like that there may not be much I could do (other than maybe donate shares to charity before the taxable event happens), but if I know I'm going over I would go way over and set myself up better for future years.

 

[cathy63]

The QBI income would be reported on the Fidelity 1099Div, line 5, Section 199A dividends.

Yes, but it's not 100% deductible. I have section 199A divs, but my QBI deduction is $0. It's helpful to look at the worksheets in TTax to find out how that calculation is done.

 

[ownyourfuture]

The real value comes in looking at his income level and seeing if there is anything he can do to lower his MAGI for 2019.

Now if he needs all that money for his budget he doesn't a lot of choices.

I've already taken steps to lower my MAGI for 2019.
In late February, I sold all of my iShares International Select Div ETF.
It pays a nice dividend, which I'd been taking in cash for the past 2 years, but the share price has gone nowhere & I had a loss of just under 3k when I sold.

Fortunately, I can afford the money I owe the feds for 2018, & it won't affect my budget at all.

Lastly, I made a spreadsheet for 2019 dividends & interest, with a reminder to myself that even though the dividends from my muni bond fund are state & federal tax free, they still count towards MAGI.



I'll make a separate one for capital gains/losses.