ACA Federal Tax Credits

[HadEnuff]

I have some questions about the way ACA Tax Credits work.

When they refer to income being 400% or less of the "national poverty level", are they talking about AGI, Taxable Income?? What?

What is that number currently (the "national poverty level"?

For Husband and Wife filing jointly, with no other dependents, what is the income threshold (again, which income number are they using?)

I'll have more questions, I'm sure, as some of these get answered and commented on (I hope).

Thanks

 

[bingybear]

The number you are looking for is not directly on the tax forms. It is a Modified Adjusted Gross Income (MAGI). Check this link for the definition of what counts and what does not.

For a family of two adults... the 400% is somewhere between $63k and $64k as I recall.

 

[zinger1457]

The income used to determine the ACA subsidy is the Modified Adjusted Gross Income which for most people is just the AGI (line 37 on 1040). To get MAGI add the following to your AGI:

• Tax-exempt foreign income
• Tax-exempt Social Security benefits (including tier 1 railroad retirement benefits)
• Tax-exempt interest

I would suggest you use one of the ACA subsidy calculators to get an estimate, I've used the Kaiser Family Foundation calculator and it seems to be accurate.
Health Insurance Marketplace Calculator | The Henry J. Kaiser Family Foundation

 

[HadEnuff]

From what i can tell, MAGI does not allow you to deduct Real Estate Taxes, Mortgage Interest, State Income Taxes.

 

[zinger1457]

From what i can tell, MAGI does not allow you to deduct Real Estate Taxes, Mortgage Interest, State Income Taxes.

Correct.

 

[scrabbler1]

From what i can tell, MAGI does not allow you to deduct Real Estate Taxes, Mortgage Interest, State Income Taxes.

Not only is this correct, but MAGI includes "income" from state and local tax refunds and rebates (if you itemized your deductions on the prior year's return), so if you overpaid your state and local income taxes and got a tax refund, that refund is taxable and will increase your MAGI and reduce your federal ACA subsidy. This was a downside of bunching my itemized deductions a few years ago because it would expose a property tax rebate to not only income taxes but to MAGI and a reduction in the ACA subsidy. With my medical expenses a little higher now (due to my recent and ongoing health issues), bunching versus non-bunching makes no difference any more.

 

[ivinsfan]

Not only is this correct, but MAGI includes "income" from state and local tax refunds and rebates (if you itemized your deductions on the prior year's return), so if you overpaid your state and local income taxes and got a tax refund, that refund is taxable and will increase your MAGI and reduce your federal ACA subsidy. This was a downside of bunching my itemized deductions a few years ago because it would expose a property tax rebate to not only income taxes but to MAGI and a reduction in the ACA subsidy. With my medical expenses a little higher now (due to my recent and ongoing health issues), bunching versus non-bunching makes no difference any more.

A property tax rebate would be taxable if you had deducted the property tax as an itemized deduction they would simply offset each other and zero out. OTOH if you overestimate your quarterly tax payments or over withhold on your W-2 you are simply getting your own money back, why would this be counted twice as income?

 

[scrabbler1]

A property tax rebate would be taxable if you had deducted the property tax as an itemized deduction they would simply offset each other and zero out. OTOH if you overestimate your quarterly tax payments or over withhold on your W-2 you are simply getting your own money back, why would this be counted twice as income?

Yes, the property tax rebate (or overpaid estimated state income tax payment) would be taxable if I had deducted the original (overstated) property tax, so that evens out on the income tax side. But I don't get to reduce my MAGI by the amount of any property (or estimated state income) tax, so my MAGI also doesn't get reduced, only increased in the year I claimed the overstated deduction(s).

When I was working up the effects of bunching my deductions, I did it on a 2-year basis and included the net decrease in my ACA subsidy along with the net decrease in my income taxes. They roughly canceled each other out, so I abandoned my effort to bunch my deductions.

 

[pb4uski]

I have some questions about the way ACA Tax Credits work.

When they refer to income being 400% or less of the "national poverty level", are they talking about AGI, Taxable Income?? What?

What is that number currently (the "national poverty level"?

For Husband and Wife filing jointly, with no other dependents, what is the income threshold (again, which income number are they using?)

I'll have more questions, I'm sure, as some of these get answered and commented on (I hope).

Thanks

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

 

[pb4uski]

A property tax rebate would be taxable if you had deducted the property tax as an itemized deduction they would simply offset each other and zero out. OTOH if you overestimate your quarterly tax payments or over withhold on your W-2 you are simply getting your own money back, why would this be counted twice as income?

It would not be counted twice as income. Say you earn $100k and $5k of state tax is withheld. You claim the income and the amount withheld as an itemized deduction.

Now, let's say when you do your state return you end up with $4k in tax and get a $1k refund. The $1k refund is shown as income the following year.

So between the two years you report $101k of income and took a $5k deduction for a net of $96k. The reality is that you made $100k and paid $4k in state income taxes for the same net of $96k. The way the forms work, income is overstated by $1k but deductions are as well.

 

[MBSC]

What is that number currently (the "national poverty level"?

For Husband and Wife filing jointly, with no other dependents, what is the income threshold (again, which income number are they using?)

You can find the values in the link below. The FPL charts run a year behind due to their late publication date. The 2016 FPL chart listed first will be used for 2017 exchange plans. Further down the webpage is the 2015 FPL chart currently in use for 2016 exchange plans.

Federal Poverty Guidelines | Families USA

 

[ivinsfan]

It would not be counted twice as income. Say you earn $100k and $5k of state tax is withheld. You claim the income and the amount withheld as an itemized deduction.

Now, let's say when you do your state return you end up with $4k in tax and get a $1k refund. The $1k refund is shown as income the following year.

So between the two years you report $101k of income and took a $5k deduction for a net of $96k. The reality is that you made $100k and paid $4k in state income taxes for the same net of $96k. The way the forms work, income is overstated by $1k but deductions are as well.

So if you take a standard deduction, this would not apply?

 

[GTFan]

A refund shows up as income regardless of how you do deductions.

 

[scrabbler1]

If you take the (federal) standard deduction, you don't declare as income a property tax or state/local income tax refund.

 

[MichaelB]

A refund of state income tax or property tax is considered taxable income if it was itemized and deducted the year it was paid and then refunded in a subsequent year. If it was never deducted, the refund is not considered income.

 

[HadEnuff]

I'm confused. If we are using MAGI, which doesn't allow for state income tax deductions in the first place, why would it add back a refund?

 

[Sue J]

I found this to be one of the simplest explanations of the ACA MAGI -

http://www.consumerreports.org/health/resources/pdf/health-reform/1040_callouts.pdf?EXTKEY=AYAHRE03

It's all on your Page 1 of the Fed 1040. If you have something in those 2 red boxes (tax exempt interest and Social Security Benefits) in the Income section your Line 37 needs to be adjusted.

 

[scrabbler1]

I'm confused. If we are using MAGI, which doesn't allow for state income tax deductions in the first place, why would it add back a refund?

I agree that it doesn't make sense, especially when the taxpayer has no control over the timing of the overpayment versus the refund/rebate.

 

[ivinsfan]

From what i can tell, MAGI does not allow you to deduct Real Estate Taxes, Mortgage Interest, State Income Taxes.

I'd like someone to point out where is says mortgage interest is not deductible and has to be added back into your income. Tax exempt interest is not the same as mortgage interest.

 

[zinger1457]

I'd like someone to point out where is says mortgage interest is not deductible and has to be added back into your income. Tax exempt interest is not the same as mortgage interest.

Not sure what you mean by ''has to be added back into your income'? When you determine your MAGI you're using your AGI, before you itemize deductions. Mortgage interest hasn't been deducted yet so no reason to add it back in.

 

[ivinsfan]

Right that's the way I understand it, I think there is some mixing of income add on and deductions and stuff on this thread that is confusing....Sue J had the best link to explanation in my opinion. , the number is your gross income and very few things count as deductions for ACA purposes.

For example I usually have some over payment on my state tax, but I don't ever have the amount listed in line 10...so it's not income.

 

[pb4uski]

I agree that it doesn't make sense, especially when the taxpayer has no control over the timing of the overpayment versus the refund/rebate.

I agree it does not make sense to include prior year state tax refunds where one itemized in the prior year in MAGI, but nonetheless that is the way it is defined.

 

[ivinsfan]

A refund shows up as income regardless of how you do deductions.

So the instructions for line 10. clearly state the refund only has to be reported as income if it was deducted in a previous year.So I have to disagree with this.

 

[ownyourfuture]

The income used to determine the ACA subsidy is the Modified Adjusted Gross Income which for most people is just the AGI (line 37 on 1040). To get MAGI add the following to your AGI:

• Tax-exempt foreign income
• Tax-exempt Social Security benefits (including tier 1 railroad retirement benefits)
• Tax-exempt interest

I would suggest you use one of the ACA subsidy calculators to get an estimate, I've used the Kaiser Family Foundation calculator and it seems to be accurate.
Health Insurance Marketplace Calculator | The Henry J. Kaiser Family Foundation

Thanks so much for this link zinger.
Something very similar to this was available at my state aca healthcare website at one time, but was taken down ?

 

[pb4uski]

So the instructions for line 10. clearly state the refund only has to be reported as income if it was deducted in a previous year.So I have to disagree with this.

+1