Good article here on the potential repayment caps for incomes higher than planned, getting ACA assistance. http://finance.yahoo.com/news/tax-refunds-may-hit-due-115900935.html
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I'm afraid this is going to be a disaster for some families who perhaps were just under 400% FPL and got some substantial credits and then some overtime income or a raise or a bonus throws them off the Obamacare subsidy cliff. There going to be some really mad taxpayers once that occurs.
I'm not near the cliff, but in that situation couldn't you make a traditional IRA contribution to get you back below the cut off point?
I believe deductions for traditional IRA contributions are added into modified adjusted gross income, so they wouldn't count in computing an ACA subsidy. However, those with a high-deductible policy with health savings account eligibility can reduce modified adjusted gross income by contributing to that account.
I had to check. I don't think IRA contributons are added back. See http://laborcenter.berkeley.edu/pdf/2013/MAGI_summary13.pdf
There is a website that suggests IRA contributions are added back but I think it is incorrect. ObamaCare Calculator: Subsidies, Tax Credits, Cost Assistance
We went through this exercise here a few months ago as I recall, and we wound up finding essentially irrefutable evidence -- straight from the IRS, as I recall -- that TIRA contributions do reduce your MAGI for ACA purposes. And anyone who can afford to contribute to both HSAs and TIRAs can double down on the MAGI reduction.
We went through this exercise here a few months ago as I recall, and we wound up finding essentially irrefutable evidence -- straight from the IRS, as I recall -- that TIRA contributions do reduce your MAGI for ACA purposes. And anyone who can afford to contribute to both HSAs and TIRAs can double down on the MAGI reduction.
As a bonus bonus bonus, if you save the receipts from previous year's medical payments you paid for out of pocket instead of with your HSA, you can at any time deduct these from your current HSA balance tax and penalty free. So it can be used as an investment vehicle and a general emergency fund (once you have some significant bills you have paid in previous years).
For clarification, and please forgive my ignorance .... tIRA contributes reduce MAGI for ACA subsidy purposes. Would t401k contributions ? What about ROTH 401k contributions ?
Good article here on the potential repayment caps for incomes higher than planned, getting ACA assistance. http://finance.yahoo.com/news/tax-refunds-may-hit-due-115900935.html
Great article, but I can almost not believe I am reading it correctly. If I seriously under-estimate my income (but do so in good faith) and receive an ACA-subsidy thereby, my penalty is nonetheless "capped" at an amount that may be LOWER than the true cost of my insurance??
Until I see the tax tables and instruction forms, I would suggest to my kids they budget their normal income tax and also expect to pay back the entire amount of the subsidy that exceeds their "best case" or "highest estimated" income level. If they are then asked to pay back less they can treat it as a windfall.Great article, but I can almost not believe I am reading it correctly. If I seriously under-estimate my income (but do so in good faith) and receive an ACA-subsidy thereby, my penalty is nonetheless "capped" at an amount that may be LOWER than the true cost of my insurance??
Until I see the tax tables and instruction forms, I would suggest to my kids they budget their normal income tax and also expect to pay back the entire amount of the subsidy that exceeds their "best case" or "highest estimated" income level. If they are then asked to pay back less they can treat it as a windfall.
Great article, but I can almost not believe I am reading it correctly. If I seriously under-estimate my income (but do so in good faith) and receive an ACA-subsidy thereby, my penalty is nonetheless "capped" at an amount that may be LOWER than the true cost of my insurance??
It gets even better - if you estimated below 250% FPL and got Silver plan cost-sharing, you essentially get that for free even if you go way above your estimated income. All you owe is the capped penalty for the subsidy but you had a much better plan to boot.