over the ACA cliff

[retire-early]

I though my income would be severely reduced in 2020 because of the pandemic, so I sold an ETF.
I also did not anticipate that I would be eligible for unemployment benefits.

Long story short I need to be able to come up with about $1000 in deductions, but I don't have any.

The only deductions are in Schedule 1 Part II.

Any ideas?

[RunningBum]

I think the COVID relief bill eliminates the clawback in situations like this. I'm not certain it applies if you go over the cliff, but I think so. The House is expected to pass the revised bill and Biden to sign it this week. Wait and see exactly what that means to you.

Otherwise, I assume you looked at each and every item in Sched 1 Part II like IRA deductions, HSA contributions, etc. and they either don't apply and you already took?

[retire-early]

Quote:

Originally Posted by RunningBum I think the COVID relief bill eliminates the clawback in situations like this. I'm not certain it applies if you go over the cliff, but I think so. The House is expected to pass the revised bill and Biden to sign it this week. Wait and see exactly what that means to you. Otherwise, I assume you looked at each and every item in Sched 1 Part II like IRA deductions, HSA contributions, etc. and they either don't apply and you already took?

I have a HSA and I did deduct that.

I may be eligible for the IRA deduction, but I am not sure.
I am self-employed and I have a solo 401K, but I had 1099 income only because they paid me in January 2020 for December 2019.
The rest of my income is unemployment and dividends+interest.

According to the IRS instructions for Line 19 IRA Deduction:
Were You Covered by a Retirement
Plan?
If you were covered by a retirement plan
(qualified pension, profit-sharing (in-
cluding 401(k)), annuity, SEP, SIMPLE,
etc.) at work or through self-employ-
ment, your IRA deduction may be re-
duced or eliminated..

What does that mean for me?

[cathy63]

Quote:

Originally Posted by retire-early I have a HSA and I did deduct that. I may be eligible for the IRA deduction, but I am not sure. I am self-employed and I have a solo 401K, but I had 1099 income only because they paid me in January 2020 for December 2019. The rest of my income is unemployment and dividends+interest. According to the IRS instructions for Line 19 IRA Deduction: Were You Covered by a Retirement Plan? If you were covered by a retirement plan (qualified pension, profit-sharing (in- cluding 401(k)), annuity, SEP, SIMPLE, etc.) at work or through self-employ- ment, your IRA deduction may be re- duced or eliminated.. What does that mean for me?

I agree with RunningBum that you should wait and see what's in the American Rescue Plan that should be finalized this week.

If you do need to reduce income, you may be able to make a deductible IRA contribution of the greater of your 1099 income or $6K ($7K if you're over 50) even if you have a 401K. It depends on your AGI though, and the phase-out starts at $65K if you're single. If you're married, you could also make a spousal IRA contribution. The phase out would start at $104K if your spouse is not covered by a 401K.

[retire-early]

Quote:

Originally Posted by cathy63 I agree with RunningBum that you should wait and see what's in the American Rescue Plan that should be finalized this week. If you do need to reduce income, you may be able to make a deductible IRA contribution of the greater of your 1099 income or $6K ($7K if you're over 50) even if you have a 401K. It depends on your AGI though, and the phase-out starts at $65K if you're single. If you're married, you could also make a spousal IRA contribution. The phase out would start at $104K if your spouse is not covered by a 401K.

Thank you to you and RunningBum.
I admit I haven't been paying attention to the news on this.
My brain is amok because I am slightly panicking on this.

How would something like that work to prevent the clawback?

The IRS has already published these forms.
Will the IRS have to revise Form 8962 which is the form used to reconcile the Premium Tax Credit ?

[EastWest Gal]

Did you max out your HSA? Do you have a spouse with an HSA that can be funded? Or started before April 15th? The good news is that it appears the COVID relief package may contain language that prevents a clawback of overpaid premiums for TY 2020.

"The Ways and Means proposal would make significant changes to bolster the ACA and improve marketplace access and affordability.

The proposal would:

- Extend ACA subsidies to higher-income people who do not currently qualify for 2021 and 2022;
- Increase ACA subsidies for lower-income people who already qualify for - 2021 and 2022;
- Provide maximal ACA subsidies for individuals that receive unemployment benefits in 2021; and
- Prevent taxpayers who misestimated their income in 2020 from having to repay excess premium tax credits at tax time.

https://www.healthaffairs.org/do/10....9.337315/full/

With regard for the Line 19 IRA Deduction, I think you will have to find more instructions and a worksheet if you fall within the "partial deduction" limit.

https://tinyurl.com/tak2nxn2

I made a tiny url. It links to the relevant IRS webpage.

[PaunchyPirate]

Quote:

Originally Posted by EastWest Gal Did you max out your HSA? Do you have a spouse with an HSA that can be funded? Or started before April 15th? The good news is that it appears the COVID relief package may contain language that prevents a clawback of overpaid premiums for TY 2020. "The Ways and Means proposal would make significant changes to bolster the ACA and improve marketplace access and affordability. The proposal would: - Extend ACA subsidies to higher-income people who do not currently qualify for 2021 and 2022; - Increase ACA subsidies for lower-income people who already qualify for - 2021 and 2022; - Provide maximal ACA subsidies for individuals that receive unemployment benefits in 2021; and - Prevent taxpayers who misestimated their income in 2020 from having to repay excess premium tax credits at tax time. https://www.healthaffairs.org/do/10....9.337315/full/ With regard for the Line 19 IRA Deduction, I think you will have to find more instructions and a worksheet if you fall within the "partial deduction" limit. https://tinyurl.com/tak2nxn2 I made a tiny url. It links to the relevant IRS webpage.

From the linked article...

“But repayment limits would not apply to those who received APTC because they expected their income to be lower but who ultimately earned more than 400 percent of the FPL. These enrollees must repay all APTC received in the prior year. This could leave those who earn just over 400 percent of the FPL in debt of many thousands of dollars to the IRS for full APTC, while those who earn just under 400 percent of the FPL would be protected by repayment limits.”

Isn’t this the OPs situation?

[retire-early]

In reading the linked article, someone mentioned not taxing the first $10K of unemployment which would solve my situation.

In the mean time, I will do a mock-up of the IRA Deduction worksheet.

.

[EastWest Gal]

Unfortunately, that probably only applies to 2021, I think.

[retire-early]

One of the commenters wrote that she was in deep trouble if she has to repay all the PTC.
I am able to weather it, but I hope that they are able to help people with this.

[RetiredAt55.5]

Quote:

Originally Posted by PaunchyPirate From the linked article... “But repayment limits would not apply to those who received APTC because they expected their income to be lower but who ultimately earned more than 400 percent of the FPL. These enrollees must repay all APTC received in the prior year. This could leave those who earn just over 400 percent of the FPL in debt of many thousands of dollars to the IRS for full APTC, while those who earn just under 400 percent of the FPL would be protected by repayment limits.” Isn’t this the OPs situation?

I think that section of the article is just summarizing the way it works currently. Further down in the same article -

"Recognizing the challenges with predicting income in 2020 and the burden that clawbacks could put on strained finances, the Ways and Means proposal would temporarily waive the requirement for taxpayers to pay back excess APTC to the IRS. This would protect people at all income levels—those subject to repayment limits and those whose income is over 400 percent FPL—by not requiring any repayment for the 2020 tax year. This change does not appear to affect the ability of those who overestimated their income for 2020 to receive PTCs they are owed during tax time."

[SecondCor521]

Quote:

Originally Posted by EastWest Gal Unfortunately, that probably only applies to 2021, I think.

There has been chatter that the first $10.2K of unemployment being non-taxable would apply to TY 2020. Since we're in the midst of the TY2020 filing season, it has not been explained yet how this will be handled. My guess is that affected taxpayers will be required to file an amended return.

[sengsational]

Yes, it would seem that the tax code "is what it is" right now, so if in 2020, you fell off the cliff, your only move is to either pay it, or ask for an extension (I'd do the latter, in hopes that they make accommodations later).

[SecondCor521]

Quote:

Originally Posted by sengsational Yes, it would seem that the tax code "is what it is" right now, so if in 2020, you fell off the cliff, your only move is to either pay it, or ask for an extension (I'd do the latter, in hopes that they make accommodations later).

Keep in mind that an extension to file is not an extension to pay, so the OP would need to pay any amount due by 4/15 or face failure to pay penalties and interest if the expected tax benefit materializes in a way that didn't match with the OP's prediction. For example, maybe Congress and the IRS decides that the unemployment thing becomes a credit on the 2021 return (unlikely, but possible).

I'd consider paying the amount due (plus maybe a bit extra) and filing for an extension, but honestly that doesn't seem much better than just filing and paying what is owed now, and then presumably filing an amended return later. In fact, the latter seems simpler and less risky to me.

[Surewhitey]

Regarding the TIRA, I could be wrong, but I don't think you do this if you have a SEP 401k. My first year doing one myself and my tax software said a no-go on the TIRA.

[retire-early]

Quote:

Originally Posted by Surewhitey Regarding the TIRA, I could be wrong, but I don't think you do this if you have a SEP 401k. My first year doing one myself and my tax software said a no-go on the TIRA.

Interesting, because the IRS seems to be saying you have to have contributed to it to be considered covered. https://www.irs.gov/retirement-plans...etirement-plan

Defined contribution plan (profit-sharing, 401(k), stock bonus and money purchase pension plan) and any contributions or forfeitures were allocated to your account for the plan year ending with or within the tax year

.

[RetiredAt55.5]

Quote:

Originally Posted by sengsational Yes, it would seem that the tax code "is what it is" right now, so if in 2020, you fell off the cliff, your only move is to either pay it, or ask for an extension (I'd do the latter, in hopes that they make accommodations later).

What I find interesting, is that one could put money into a traditional IRA to get below the cliff (if they have enough earned income), but if the stimulus package passes with the waiver of paying back subsidies, then funding the traditional IRA was unnecessary.

A quick google search indicates you can reverse an IRA contribution, but it has to be done before April 15.

I still think they should've extended the April 15th tax date. These late changes have to be driving the tax software and tax preparer companies crazy.

[Yoheadden]

I’ll be watching this closely as well, as I am in the same boat. Due to unemployment, regular work and selling some MFs early in the year, it put us over the limit and we have to pay back DWs subsidies. Thankfully we contribute to HSAs which brought down our total liability a little.
Even though I have a plan I through the ACA, I don’t qualify for subsidies because I am also eligible for health care through the VA, even though I don’t go there. Once ERd, I’m considering dropping my coverage and just using the VA which would save us thousands, but need to judge the trade off in health care.

[retire-early]

Apparently the American Rescue Plan exempts the first $10,200 of unemployment insurance benefits from federal income taxes as long as the household AGI is less than $150,000.

Now, we will have to wait for new tax forms.
The people at the IRS must be pulling their hair out with so many changes 1 month before tax day April 15.

.

[Yoheadden]

Quote:

Originally Posted by retire-early Apparently the American Rescue Plan exempts the first $10,200 of unemployment insurance benefits from federal income taxes as long as the household AGI is less than $150,000. Now, we will have to wait for new tax forms. The people at the IRS must be pulling their hair out with so many changes 1 month before tax day April 15. .

Not just the IRS, every tax preparer out there. Apparently, this was not the year to try and file early.

Then again, I told my M-I-L about this, who promptly called her tax preparer. He was aware of the change and angry as hell. However, he was going to redo her return, but charge her again. So in the long run, he will make out, albeit with a little aggravation.