ACA penalty for overestimating income?

[Fermion]

I have not kept track this year of all of the potential changes in ACA requirements but is there currently any type of penalty or risk of being accused of fraud if you missed your income projection for 2021 on the low side?

Because I realized some losses in one taxable account, it is looking like we are only going to have gains of about ~$19,000 this year. When I signed up again in 2021 I projected a MAGI of $24,000 for 2021 and received a silver plan with significant cost sharing.

I am still not dead sure of the $19,000...it could be as low as $17,000 or as high as $20,000 if I have missed something. It is not super easy without all of the final forms that come out in 2022, which is too late to do anything about 2021 income.

I can do a Roth conversion of some IRA assets to bump our MAGI up to $24,000 but it is also somewhat complicated as I have some basis spread out on various IRAs and concerned that I could mess that up as well. Since you can no longer recharacterize a conversion, I can't justify just converting a much larger amount because it would be wasteful and I might need that conversion income in future years as our taxable account gets smaller and our tax deferred grows.

So....is there any downside if our MAGI just turns out to be $19,000? Technically then we should have been on Medicaid but can they claw back our $12,000 in subsidies?

 

[londo]

No idea how being in a state with expanded Medicaid would or would not affect this, but from the purely federal tax side it looks like you're ok. Form 8962 is where you deal with PTC, and the instructions for line 5, where you may end up with less than 100% of the federal poverty line, say that that is fine unless your missed estimate was "with intentional or reckless disregard for the facts". Otherwise you carry on and get to keep all your subsidy.

 

[sengsational]

You estimated 24 and you're coming in between 17 and 20? I imagine that happens all the time when a low-wage worker looses their job. I can't imagine they'd have written the law to claw-back anything. Also, I read several places over the years that they never try to claw-back the Silver cost sharing.

I estimated just under 400% FPL and ended up blowing that completely out of the water because I decided a few days ago to "go big" on the Roth conversions. My earlier estimate was as good as estimates could be: it's what I thought would happen. The cliff is gone this year, replaced by a ramp. That changed the dynamics. I'm paying back a lot of the PTC that they gave me during the year.

 

[Born2Fish]

I found this on Google, from Investopedia.com...

An underpayment penalty is a fine levied by the IRS on taxpayers who don't pay enough of their estimated taxes or have enough withheld from their wages, or who pay late. To avoid an underpayment penalty, individuals must pay either 100% of last year's tax or 90% of this year's tax.

I made a final 401k withdrawal a week or so ago to fund our HSAs ($4600 to each account) and withheld 92% Fed and 86% NC taxes due. I had made a previous 401k withdrawal for Roth IRA conversion in September without withholding.

Do I need to initiate a final final withdrawal and top off Fed and NC?

 

[jj]

$17,240 is the federal poverty limit for 2020 for a couple, this is the applicable minimum amount for ACA subsidy in 2021. If your MAGI is below that then you don't qualify for a subsidy, but I believe the subsidy doesn't get clawed back at tax time.

Whether you would be allowed to have a subsidy in 2022 after this has happened I don't know.

Are there any Tax-Aide volunteers on the board who might know?

 

[jim584672]

One bad thing about an overestimate is you may lose out on Silver plan CSRs under 250% FPL.

 

[Fermion]

Thanks for the replies all. I decided to not be lazy and just buy H&R block software now and use it to guesstimate my 2021 MAGI by manually inputting the data (fortunately I did not do as much trading this year so it isn't the normal 75 pages of trades lol....building a house took all my time).

I would want to get past the 24,000 mark anyway as that is free money (standard deduction and all)...having the lower end of 17,000 as my MAGI would not only make the ACA figures look sus but also be leaving 7,000 on the table that could be moved to Roth.

 

[Fermion]

Dang this is hard lol. The tax software isn't really ready for 2022 nor are there forms available.

Best estimate I can get is our income is $19,000. If I do a $8,000 conversion to Roth, $7,000 of that will be taxable based on the last time I filed 8606 reporting basis. This puts us at $26,000 MAGI.

The tax software actually reports with that MAGI that we get a refund of $127, I guess because the $13 a month we paid for ACA coverage (with a whopping $981 subsidy each month) was too much.

I had estimated an income of $2050 per month for 2021, or $24,600 annually for 2021, so I don't think $26,000 is going to pull any red flags. I want to hit pretty close to my estimates so I don't have to do a lot of work to prove income other than show tax returns...this is why I don't want to convert a much larger amount.

For 2022 I am currently just leaving the 2050 per month, $24,600 per year which *seems* to be working on the healthplanfinder website as it has us signed up in 2022 for a silver plan with cost sharing for about $14 a month with over $1000 in subsidy. I am a little scared to change the figure but it is really skimming the edge on being forced on Medicaid.

Do they use 2021 numbers for 2022? I can't find the 100% poverty level for 2022 definitively, I don't know if they release it yet?

The 2021 100% level for a married couple is $17,420 so the Medicaid level would be 138% of that or $24,040. Thus a projected $24,600 *should* be good to go for 2022 if they use 2021 numbers. Debating if I should increase MAGI to $25,000 but every time I mess with the numbers something bad happens like them cancelling my policy and putting us on Medicaid.

The hoops you have to go through to get $12,000 in free money...sheez. (actually probably more like $20,000 considering the cost sharing)

 

[jim584672]

The poverty level comes out in February 1, 2022 (last year it was 2/1). The ACA is always a year behind, Medicaid gets updated as soon as it is published.

 

[Fermion]

The poverty level comes out in February 1, 2022 (last year it was 2/1). The ACA is always a year behind, Medicaid gets updated as soon as it is published.

Yes, so if because of inflation they jump it up $1000 in Feb, then I might lose my policy? Or do you mean ACA will continue to use the 2021 numbers for calculating if your income is 138% of FPL?

It is such a tight range, at 150% of FPL you start to greatly increase the max out of pocket from losing some cost sharing.

 

[jim584672]

Yes, so if because of inflation they jump it up $1000 in Feb, then I might lose my policy? Or do you mean ACA will continue to use the 2021 numbers for calculating if your income is 138% of FPL?

It is such a tight range, at 150% of FPL you start to greatly increase the max out of pocket from losing some cost sharing.

The 2022 ACA plans PTC calculation is based on the 2021 FPL number. I don't know why you would lose a policy. Medicaid is monthly based so it gets adjusted right away.

 

[Aerides]

Yeah I don't think you can lose a policy, and "i made less money than I planned to" is not something that is smart to penalize people for. If it's only one year, and not a habit, even better.

So, let's say for 2021 you came in a bit under plan. (are we talking $20 instead of $25 type stuff?)... as long as you were ACA eligible I don't see a problem. Even if you came in $15 for the year and should have been on Medicaid, it would be insane to say "oops you should not have had an ACA silver plan and no subsidy here's your bill and you can't come back on!" - that would be extraordinary.

I know one year we came in well below our estimates because we didn't have any cap gains to speak of, ($28ish instead of $64), and I didn't do anything differently than file our taxes and renew our plan at the end of the year like normal.

 

[jim584672]

As long as they accept your estimate and you later come in under 138% in actual numbers it doesn't matter. It is possible to drop into Medicaid by doing a re-estimate mid-year for an income drop.

 

[Fermion]

As long as they accept your estimate and you later come in under 138% in actual numbers it doesn't matter. It is possible to drop into Medicaid by doing a re-estimate mid-year for an income drop.

Right yes, this is what I mean. On the website for Washington state health plans, they require you to put in your projected monthly income to calculate your subsidy. If you do a re-estimate during the year they will immediately shunt you to Applecare (Medicaid) if the numbers don't meet the 138% FPL requirements. I know, I accidentally did this a few years back and had to spend several frantic days trying to get back my policy.

I am not sure if the shunt would be automatic if you don't increase your projected monthly income immediately when the new FPL numbers come out.

 

[jim584672]

They don't care unless you make it an issue. Just don't re-estimate.

 

[chassis]

No worries. It’s trued up at tax return time. Don’t sweat it.

If you make more money than indicated, you owe back the tax credits and possibly a penalty. If you make less money than indicated, you may be entitled to more tax credits.

 

[RetiredHappy]

Somewhat related question for ACA application:
1) Year 1, on Medicaid (through ACA site) due to low income, but got a job in September although longevity of job is unknown.
2) Year 2, report as low income or projected higher income because of work in Q4 of year 1?

Thanks.

 

[jim584672]

Somewhat related question for ACA application:
1) Year 1, on Medicaid (through ACA site) due to low income, but got a job in September although longevity of job is unknown.
2) Year 2, report as low income or projected higher income because of work in Q4 of year 1?

Thanks.

Changes to income on Medicaid should be reported within 30 days. Right now we are in a PHE (public health emergency) so no one loses coverage (even if you are over).

 

[RetiredHappy]

Changes to income on Medicaid should be reported within 30 days. Right now we are in a PHE (public health emergency) so no one loses coverage (even if you are over).

So... if the person renews policy for 2022, the question is whether the person should apply as low income or income enough to qualify for ACA? The person should make about $8K from work income and $5K from dividends and capital gains in 2021. Dividends of about $3K is the only thing that is certain in 2022. However if the person does not lose his job in 2022, he should have about $30K income.

 

[jim584672]

So... if the person renews policy for 2022, the question is whether the person should apply as low income or income enough to qualify for ACA? The person should make about $8K from work income and $5K from dividends and capital gains in 2021. Dividends of about $3K is the only thing that is certain in 2022. However if the person does not lose his job in 2022, he should have about $30K income.

If you are on it now they will lock you in until the PHE is over no matter what income you put down.

 

[RetiredHappy]

If you are on it now they will lock you in until the PHE is over no matter what income you put down.

Thanks!