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At Risk of Losing ACA Insurance Credit Due to Receipt of Windfall
Old 07-03-2020, 10:24 AM   #1
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At Risk of Losing ACA Insurance Credit Due to Receipt of Windfall

DW and I purchase medical insurance through the Insurance Exchange under the Affordable Care Act and have elected to apply our approximately $20,000 yearly credit through reduced premiums. We expected our reportable income to be about $45,000 from DW's SS and CD interest.

Last week I received a $39,000 payment, the likes of which I thought I would never see. Let me explain: 18 years ago when I divorced my first wife, she wished to remain in the marital home, but did not have enough funds to buy me out of my half of the house we jointly owned. The attorney I retained when drafting our property settlement agreement included the deficiency as a $23,000 loan to my ex, payable in 15 years in one lump sum plus 6% interest compounded annually. He also recorded at the county courthouse a lien on the house for the $23,000 plus interest.

About 4 years after our divorce my ex offered to repay $10,000 if I would sign a subordination agreement, becoming a secondary lienholder, as part of a cash out refinance. I jumped at the opportunity because I figured that was all the money I would get.

Well, last year the house went into foreclosure and was auctioned off on the courthouse steps. I considered contacting the trustee managing the sale, but a couple of people I asked who know about these matters said I was out of luck and the lien on the property was dissolved by the foreclosure.

A couple of weeks ago I get a letter from a law office stating that there may be excess funds from the auction of the house I have a lien on and asked me to forward to them the original note and a payoff statement, which I did, adjusted for the 2006 $10,000 payment I received. The law office also asked for a copy of my social security card, I assume to issue a form 1099 INT.

Before the check arrived, I asked the law office staff how much I would receive and the reply was, "All of it."

I assume for the 1099 INT I receive from the law firm to be correct, the amount has to be for interest only and not include any amount for principle. The loan balance following the 2006 payment was about $19,000. Thus the 1099 INT should not be for more than about $20,000. And if it looks incorrect I need to contact the law firm and question their amount. Does this sound correct? I did email the law firm and ask if I was getting a 1099 and if so, for how much. Haven't gotten a reply yet.

If it looks like our ACA tax credit is in jeopardy, I plan to redeem some of the no penalty CDs we have and deposit the cash in a non-intrest bearing account. I just need to know how much I have to drop our reportable income to keep our ACA credit. Does this sound like a good plan? Thanks.
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Old 07-03-2020, 10:32 AM   #2
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Does this help? I'm not on ACA, but knew this exists:

https://taxpayeradvocate.irs.gov/est...xcreditchange/
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Old 07-03-2020, 11:38 AM   #3
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I think 400% FPL for 2020 is $68,960 and it looks like you will be really close.... but not go over the cliff since $45k + $19k is less than 400% FPL.

At this site it phases out above $67,600. https://www.kff.org/interactive/subs...&child-count=0
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Old 07-03-2020, 12:43 PM   #4
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Originally Posted by pb4uski View Post
I think 400% FPL for 2020 is $68,960 and it looks like you will be really close.... but not go over the cliff since $45k + $19k is less than 400% FPL.

At this site it phases out above $67,600. https://www.kff.org/interactive/subs...&child-count=0
It's $67,640 for 2020 for a family size of 2 living in the contiguous 48 states.

It's $68,960 for 2021 for a family size of 2 living in the contiguous 48 states.

If OP doesn't live in the contiguous 48 states or has a different family size, then the numbers are different.

This is the clearest site I've seen for understanding the limit:

https://thefinancebuff.com/federal-p...obamacare.html

OP, if I were in your shoes I would monitor my income carefully and consider ways to reduce my MAGI. A couple of ideas would be to realize capital losses, or anything that is an adjustment to income (see Schedule 1 Part II for a list); the most notable of those is a traditional IRA contribution for you or your spouse.
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Old 07-03-2020, 02:05 PM   #5
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Does this help? I'm not on ACA, but knew this exists:

https://taxpayeradvocate.irs.gov/est...xcreditchange/
Thank you SumDay. I was not aware of the ACA tax credit calculator; this helps a lot.
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Old 07-03-2020, 02:09 PM   #6
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Originally Posted by pb4uski View Post
I think 400% FPL for 2020 is $68,960 and it looks like you will be really close.... but not go over the cliff since $45k + $19k is less than 400% FPL.

At this site it phases out above $67,600. https://www.kff.org/interactive/subs...&child-count=0
Thank you pb4uski. I've bookmarked this web site too.
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Old 07-03-2020, 02:13 PM   #7
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Originally Posted by NateW View Post
... If it looks like our ACA tax credit is in jeopardy, I plan to redeem some of the no penalty CDs we have and deposit the cash in a non-intrest bearing account. I just need to know how much I have to drop our reportable income to keep our ACA credit. Does this sound like a good plan? Thanks.
So ... you are receiving enough money that you could afford to pay your full insurance bill but you are looking for a way to get the taxpayers of the country to continue paying instead? Just checking my understanding.
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Old 07-03-2020, 02:31 PM   #8
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So ... you are receiving enough money that you could afford to pay your full insurance bill but you are looking for a way to get the taxpayers of the country to continue paying instead? Just checking my understanding.
Why not? After all we learn it from those at the top. Not that I have a dog in this hunt but don't we all have a duty to ourselves to reduce our taxes as much as possible? That's all the ACA credit is anyway.
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Old 07-03-2020, 02:40 PM   #9
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Originally Posted by SecondCor521 View Post
It's $67,640 for 2020 for a family size of 2 living in the contiguous 48 states.

It's $68,960 for 2021 for a family size of 2 living in the contiguous 48 states.

If OP doesn't live in the contiguous 48 states or has a different family size, then the numbers are different.

This is the clearest site I've seen for understanding the limit:

https://thefinancebuff.com/federal-p...obamacare.html

OP, if I were in your shoes I would monitor my income carefully and consider ways to reduce my MAGI. A couple of ideas would be to realize capital losses, or anything that is an adjustment to income (see Schedule 1 Part II for a list); the most notable of those is a traditional IRA contribution for you or your spouse.
Thank you SecondCor521. Yes, I live in the coniguous 48 states and only 2 of us in the household. I bookmarked the website link you provided.

I do have a $3000 loss carryover I will use this year, but I thought MAGI was calculated without including losses, credits, etc. I hope I am wrong about that. I wish we could contribute to a traditional IRA. Neither of us has earned income this year per the IRS's definition of earned income. But what I can do is forgo some interest income by cashing in some of our no penalty CDs and putting the money in a non-intrest bearing account.
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Old 07-03-2020, 04:43 PM   #10
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I do have a $3000 loss carryover I will use this year, but I thought MAGI was calculated without including losses, credits, etc. I hope I am wrong about that.
Capital losses (including the loss carryover) should show up on line 6 of Form 1040. MAGI is based on AGI, which is line 8b. There are some items that get backed out from AGI to get to MAGI, but I'm 99.9% sure that capital losses are not one of those things - you could check the first page or two of the instructions for Form 8962 to be 100% sure.
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Old 07-03-2020, 05:03 PM   #11
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OP are you in accumulation or withdraw? If withdraw do you feel you have more than enough to get to 65?

If you're stuck taking the hit on the subsidy at least withdraw enough to get to the top of the tax bracket. I came to that situation this year and had no way out, took the hit. It made sense to me as I know the cost for this year and next year is a big My case isn't as painful as yours but still make it to your advantage.
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Old 07-03-2020, 05:13 PM   #12
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Is your insurance plan a high deductible plan? If so you could contribute to an HSA and get up to a $7,100 deduction. I'd confirm first that that reduces the income used for subsidies.
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Old 07-03-2020, 05:25 PM   #13
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OP, your thread title is misleading. You don't seem to be at risk for loosing your ACA insurance. Maybe the subsidy, but not the insurance.
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Old 07-03-2020, 06:00 PM   #14
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This chart might help to figure out the MAGI calculation for 2020.

http://laborcenter.berkeley.edu/pdf/2019/magi.pdf
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Old 07-03-2020, 06:14 PM   #15
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OP, your thread title is misleading. You don't seem to be at risk for loosing your ACA insurance. Maybe the subsidy, but not the insurance.
The title uses "Insurance Credit", which is pretty clearly meaning the subsidy.
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Old 07-03-2020, 06:22 PM   #16
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OP, your thread title is misleading. You don't seem to be at risk for loosing your ACA insurance. Maybe the subsidy, but not the insurance.
Yeah, if you make too little dough you lose your insurance.
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Old 07-03-2020, 06:27 PM   #17
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So ... you are receiving enough money that you could afford to pay your full insurance bill but you are looking for a way to get the taxpayers of the country to continue paying instead? Just checking my understanding.
+1 cuz saps like me are paying the 3.8% additional tax on cap gains to subsidize stuff like this.
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Old 07-03-2020, 07:30 PM   #18
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So ... you are receiving enough money that you could afford to pay your full insurance bill but you are looking for a way to get the taxpayers of the country to continue paying instead? Just checking my understanding.
Only if one believes that a family of 2 with income of $45k or $64k can "afford" to spend $20k.... 44% or 31% of their income on health insurance. More than the 30% sometimes spent on housing.

BTW, that $20k doesn't include what the OP is paying to the health insurer. Any other silly questions?
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Old 07-03-2020, 07:44 PM   #19
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So ... you are receiving enough money that you could afford to pay your full insurance bill but you are looking for a way to get the taxpayers of the country to continue paying instead? Just checking my understanding.
Yes, for one thing it's legal. Also, the monetary policy practiced by our government presently has effectively driven the interest rate to zero. The reduction in CD rates alone as compared to a year ago gives me about $15,000 less per year, thus I feel no guilt in attempting to keep the ACA tax credit at the expense of a little income.
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Old 07-03-2020, 07:54 PM   #20
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OP are you in accumulation or withdraw? If withdraw do you feel you have more than enough to get to 65?

If you're stuck taking the hit on the subsidy at least withdraw enough to get to the top of the tax bracket. I came to that situation this year and had no way out, took the hit. It made sense to me as I know the cost for this year and next year is a big My case isn't as painful as yours but still make it to your advantage.
MRG, I'm in the withdrawal phase and yes, I have plenty of non tax deferred funds to pay all my expenses until I reach 65, so I do not have to tap my 401k accounts. Good point about if I loose the subsidy, withdrawing enough to come in just under the next higher tax bracket is a good idea. Perhaps I could do some Roth conversions to increase income.
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