Unemployment impact on subsidy

[Finance Dave]

I searched but did not see a topic on this...hopefully not duplicated.

From what I've read, both regular unemployment AND the $600 extra unemployment payments are included in AGI for the purpose of determining subsidy levels. Has anyone else looked into this and if so, am I reading it right?

In some cases, the extra $600/week could put someone over the subsidy cap of $67,640 (I think that's the right number for family of 2, MFJ?). A person could therefore lose their subsidy, more than erasing any benefit of the extra $600/week in unemployment.

Am I missing something here? Seems like this may have an unintended consequence for some people.


Let's look at an example: Family of 2, MFJ. One person working, the other retired and older than 59 1/2.

One person takes $18,000 out of their TIRA in January. This is done to supplement the working income stated below.

Let's say the worker "normally" earn $60,000/year. She loses her job in March after earning $12,000. So...the YTD income is $30,000.

She applies for unemployment and gets it...with the base amount set at $300/week and the extra $600/week being applied also...for a total of $900/week. This goes on until the end of July...to make the math easy let's say for 12 weeks...so she accumulates $10,800 in unemployment income.

At that point, YTD income is $10,800 plus the previous YTD income of $30,000...for a total of $40,800. Then let's say she goes back to work and earns $30,000 for the remainder of the year. This would put total income at $70,800, which is over the amount eligible for the subsidy.

The subsidy would be cut to zero, and the family would have to repay the amount at the end of the year. Had she not received the extra $600/week in unemployment, she would have received the subsidy and been better off.

A person in this situation may be better off not applying for unemployment...or "managing" it by not claiming for some weeks.

Thoughts? Am I missing something?

 

[USGrant1962]

Regular and emergency unemployment compensation are taxable income, so yes that is a wrinkle. The +$600 was poorly thought out from many angles.

 

[aboatguy]

Regular and emergency unemployment compensation are taxable income, so yes that is a wrinkle. The +$600 was poorly thought out from many angles.

or was it carefully thought-out especially in regards to the ACA ?

 

[walkinwood]

I searched but did not see a topic on this...hopefully not duplicated.

From what I've read, both regular unemployment AND the $600 extra unemployment payments are included in AGI for the purpose of determining subsidy levels. Has anyone else looked into this and if so, am I reading it right?

In some cases, the extra $600/week could put someone over the subsidy cap of $67,640 (I think that's the right number for family of 2, MFJ?). A person could therefore lose their subsidy, more than erasing any benefit of the extra $600/week in unemployment.

Am I missing something here? Seems like this may have an unintended consequence for some people.


Let's look at an example: Family of 2, MFJ. One person working, the other retired and older than 59 1/2.

One person takes $18,000 out of their TIRA in January. This is done to supplement the working income stated below.

Let's say the worker "normally" earn $60,000/year. She loses her job in March after earning $12,000. So...the YTD income is $30,000.

She applies for unemployment and gets it...with the base amount set at $300/week and the extra $600/week being applied also...for a total of $900/week. This goes on until the end of July...to make the math easy let's say for 12 weeks...so she accumulates $10,800 in unemployment income.

At that point, YTD income is $10,800 plus the previous YTD income of $30,000...for a total of $40,800. Then let's say she goes back to work and earns $30,000 for the remainder of the year. This would put total income at $70,800, which is over the amount eligible for the subsidy.

The subsidy would be cut to zero, and the family would have to repay the amount at the end of the year. Had she not received the extra $600/week in unemployment, she would have received the subsidy and been better off.

A person in this situation may be better off not applying for unemployment...or "managing" it by not claiming for some weeks.

Thoughts? Am I missing something?

Your point is well taken, but in this example, aren't your forgetting the standard deduction?

 

[N02L84ER]

Have the worker contribute $6K to their deductible IRA and $6K to a spousal deductible IRA to get under the limit.

 

[Dtail]

or was it carefully thought-out especially in regards to the ACA ?

My guess is no, as the number of folks managing their MAGI for ACA subsidies are not that great in number relatively speaking.

 

[Chuckanut]

Thoughts? Am I missing something?

Yes, it's not entirely fare. The best they can do is manage it, and hope they get it right. It's sort of like their own mini CV10 crisis.

What you are missing is the above people have a choice. My DD who has been unemployed since mid March has no choice. All she can do is take the money and hang on, hoping that the job market returns. Alas, our governor is, IMHO, overly focused on CV19 issues and not on the bigger picture which includes health issues caused by low-income and poverty.

 

[jim584672]

https://healthlaw.org/congress-stimulus-package-and-its-impact-on-magi/

Marketplace Coverage
Unemployment benefits, including the $600 payment bump, are taxable income included in MAGI. However, unlike Medicaid/CHIP, Congress did not exempt the $600 payment increase when considering someone’s eligibility for subsidies to purchase health coverage through the ACA Marketplaces.

Medicaid
... the $600 payment bump, and the $1,200/$2,400 tax rebate, should have no effect on Medicaid/CHIP.

 

[atmsmshr]

IMO some of the people 'caught' in this situation will not be savvy enough to detect it until the week prior to April 15th; or after Tax Day.

 

[Finance Dave]

Your point is well taken, but in this example, aren't your forgetting the standard deduction?

The standard deduction is taken after the agi line...so it does not affect agi.

 

[Finance Dave]

Yes, it's not entirely fare. The best they can do is manage it, and hope they get it right. It's sort of like their own mini CV10 crisis.

What you are missing is the above people have a choice. My DD who has been unemployed since mid March has no choice. All she can do is take the money and hang on, hoping that the job market returns. Alas, our governor is, IMHO, overly focused on CV19 issues and not on the bigger picture which includes health issues caused by low-income and poverty.

Not missing that...I realize they have a choice.

 

[Finance Dave]

https://healthlaw.org/congress-stimulus-package-and-its-impact-on-magi/

Marketplace Coverage
Unemployment benefits, including the $600 payment bump, are taxable income included in MAGI. However, unlike Medicaid/CHIP, Congress did not exempt the $600 payment increase when considering someone’s eligibility for subsidies to purchase health coverage through the ACA Marketplaces.

Medicaid
... the $600 payment bump, and the $1,200/$2,400 tax rebate, should have no effect on Medicaid/CHIP.

nothing new there...this is not a Medicaid situation and simply reaffirms what I thought.

 

[Finance Dave]

Have the worker contribute $6K to their deductible IRA and $6K to a spousal deductible IRA to get under the limit.

Yes...but if they need the money to support their lifestyle, this may not be possible.

 

[jim584672]

nothing new there...this is not a Medicaid situation and simply reaffirms what I thought.

I thought it was interesting that they took the effort to exclude from one and not the other. They didn't "accidentally" do anything.

 

[cathy63]

I searched but did not see a topic on this...hopefully not duplicated.

From what I've read, both regular unemployment AND the $600 extra unemployment payments are included in AGI for the purpose of determining subsidy levels. Has anyone else looked into this and if so, am I reading it right?

In some cases, the extra $600/week could put someone over the subsidy cap of $67,640 (I think that's the right number for family of 2, MFJ?). A person could therefore lose their subsidy, more than erasing any benefit of the extra $600/week in unemployment.

Am I missing something here? Seems like this may have an unintended consequence for some people.


Let's look at an example: Family of 2, MFJ. One person working, the other retired and older than 59 1/2.

One person takes $18,000 out of their TIRA in January. This is done to supplement the working income stated below.

Let's say the worker "normally" earn $60,000/year. She loses her job in March after earning $12,000. So...the YTD income is $30,000.

She applies for unemployment and gets it...with the base amount set at $300/week and the extra $600/week being applied also...for a total of $900/week. This goes on until the end of July...to make the math easy let's say for 12 weeks...so she accumulates $10,800 in unemployment income.

At that point, YTD income is $10,800 plus the previous YTD income of $30,000...for a total of $40,800. Then let's say she goes back to work and earns $30,000 for the remainder of the year. This would put total income at $70,800, which is over the amount eligible for the subsidy.

The subsidy would be cut to zero, and the family would have to repay the amount at the end of the year. Had she not received the extra $600/week in unemployment, she would have received the subsidy and been better off.

A person in this situation may be better off not applying for unemployment...or "managing" it by not claiming for some weeks.

Thoughts? Am I missing something?

If the working partner had kept her job all year, she'd earn $60K, plus they'd have the $18K from the tIRA for a total of $78K. When they signed up for ACA insurance, if they provided an accurate estimate of their income they did not qualify for a subsidy.

When she goes on unemployment in March, they would estimate their income for the rest of the year, report the change to the marketplace and might get a subsidy starting in April.

When she gets rehired at the beginning of July, they would then re-estimate their income, report the change to he marketplace and lose the subsidy starting in August.

So worst case, I think they're paying back 4 months of subsidy. 400% FPL for 2 people in 2020 is $68,960 (assuming they're not in AK or HI), so if the subsidy for the 4 months is greater than $70800 - $68960 = $1840, then it's to their benefit to put $1840 into a tIRA or an HSA or 401(k) or whatever option they might have to reduce their income below the FPL. If the subsidy is less than that, then they lose it, but they're still better off for having earned more.

 

[jim584672]

One good thing about expansion Medicaid is that it is based on current monthly income, not calendar year income. So someone who gets unemployed will not have those previous months of income count against them. Also months of future income do not count either.

 

[Finance Dave]

Thanks to all for replies

 

[ivinsfan]

or was it carefully thought-out especially in regards to the ACA ?

carefully thought out, you are talking about Congress here,

 

[Yarnstormer]

I wonder if disaster relief loans also count towards magi? I applied and received funds. They never even checked my credit. It was 10 weeks of my usual earnings - it’s my understanding that 8 weeks is forgivable if used as payroll which it will as I have very little overhead. Still, I stashed it away and I’ll wait to see if I need to pay back before I tap it.

 

[Earl E Retyre]

I wonder if disaster relief loans also count towards magi? I applied and received funds. They never even checked my credit. It was 10 weeks of my usual earnings - it’s my understanding that 8 weeks is forgivable if used as payroll which it will as I have very little overhead. Still, I stashed it away and I’ll wait to see if I need to pay back before I tap it.

If you are talking about the PPP program, I do not believe it counts towards magi. I looked into it and as far as I could tell it does not.

I almost applied - but decided against it. I had the paperwork all filled out but then on the last page they wanted me to initial a document stating that, "Current economic uncertainty makes the loan request necessary to support the ongoing operations of the Applicant." Since I am semi-retired (now probably fully retired) and this money was not "necessary to keep my operations ongoing", I did not apply. But if I did, I believe it would have been a forgivable, tax free loan that would not affect Magi.