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Balancing W/Ds and ACA subsidy
Old 10-01-2019, 01:29 PM   #1
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Balancing W/Ds and ACA subsidy

DW and I have a very good subsidy, and pay less than $400 for FL Blue and Dental. As I am 63 and she is 62, we want to keep our income as low as possible until we both get Medicare.

We have enough money in non-IRA accounts to last until then, but just barely. Unfortunately, this means that anything “extra” we do (like vacations or new(er) car), will affect our MAGI and hence our subsidy.

My question is really this: how hard is it to calculate what it would do to this year’s subsidy if I withdrew (say) $4000 for these extra purposes? I know that for next year, I will simply add them into my estimated income, and I can play with the amount until I keep my health insurance premiums where I want/need them.

I know I will get an adjustment on my taxes, but am not able to grasp what the scope will be.

FWIW, our MAGI this year filing jointly is about $31K.

Thanks!
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Old 10-01-2019, 01:40 PM   #2
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Quote:
Originally Posted by BoodaGazelle View Post
DW and I have a very good subsidy, and pay less than $400 for FL Blue and Dental. As I am 63 and she is 62, we want to keep our income as low as possible until we both get Medicare.

We have enough money in non-IRA accounts to last until then, but just barely. Unfortunately, this means that anything “extra” we do (like vacations or new(er) car), will affect our MAGI and hence our subsidy.

My question is really this: how hard is it to calculate what it would do to this year’s subsidy if I withdrew (say) $4000 for these extra purposes? I know that for next year, I will simply add them into my estimated income, and I can play with the amount until I keep my health insurance premiums where I want/need them.

I know I will get an adjustment on my taxes, but am not able to grasp what the scope will be.

FWIW, our MAGI this year filing jointly is about $31K.
It wasn't hard for my wife and I to keep our MAGI below the ~$64k limit. Your mileage may vary.

If you are truly at $31k, then another $4k wouldn't change your costs all that much. You can decide if those "extras" are worth it or not.

This might help:
https://www.healthinsurance.org/obam...emium-subsidy/
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Old 10-01-2019, 03:38 PM   #3
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Quote:
Originally Posted by BoodaGazelle View Post

I know I will get an adjustment on my taxes, but am not able to grasp what the scope will be.

FWIW, our MAGI this year filing jointly is about $31K.

Thanks!
Look at IRS form 8962, and table 2 in the instructions. Last year you would've been at about 188% of the FPL ($31K/16,460), which put the line 7 multiplier at .0579. In a somewhat roundabout way that means another $100 in income costs you 5.79% or $5.79, so an extra $4K in income would cost you about $231 annual subsidy. A little more actually because that multiplier goes up with more income. If your subsidy exceeded your premium (meaning you paid 0), it is probably less, or maybe even no impact depending on how much it exceeded the premium.

As you can see from the table it peaked out at 9.56% last year for people between 300-400% of FPL. As I'm in that range, I figure roughly a 10% impact for any added income.

The most important thing in most cases is to not exceed 400% FPL and lose the subsidy entirely (fall off the subsidy cliff). 250% is another important limit if you take part in CSR (cost sharing reductions).
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Old 10-01-2019, 04:02 PM   #4
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For us, keeping just below 400% FPL is the sweet spot.
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Old 10-01-2019, 04:08 PM   #5
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OP, it is very easy to calculate what your income is. How well you control it depends on your situation. Based on you post is sounds like you may not have an issue.

I would think you need to look at what will happen when you are medicare eligible and your wife will not. This may be more difficult.
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Old 10-01-2019, 04:23 PM   #6
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Thanks to all who have replied. Even bringing over $4-5K each year will help tremendously towards those extras... It seems like we will be able to keep our health care premiums reasonable for another 3 years or so...
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Old 10-01-2019, 04:53 PM   #7
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This is a common question, and the way I handle it is to do a 'sensitivity analysis' using the tax software on the home computer. You buy the software in November and input mostly the right info (i.e. you "do your taxes"). Of course, estimating values you don't have exact amounts for. This way, you can twiddle your December pull from tIRA and see what happens to the amount of tax owed. I pull as much as I can while considering the bracket and cliff, irrespective of planned budget.



I'm in a similar bind as you: could afford to spend more, but if I pulled too much, I'd hit the cliff and get no PTC. My solution might be easier than yours in that I have also got a Roth stash, so tapping that has no tax impact. I pull from the Roth during the year to get me to January, if needed. But if you want to splurge and keep the subsidy, you could get a HELOC maybe. If Medicare is distant for you, maybe a loan would not be such a grand idea, though. Or possibly just blow way past the cliff this year, building your after tax balance high enough to get through the following year without hitting the cliff.
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Old 10-01-2019, 05:17 PM   #8
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Quote:
Originally Posted by BoodaGazelle View Post
DW and I have a very good subsidy, and pay less than $400 for FL Blue and Dental. As I am 63 and she is 62, we want to keep our income as low as possible until we both get Medicare.

We have enough money in non-IRA accounts to last until then, but just barely. Unfortunately, this means that anything “extra” we do (like vacations or new(er) car), will affect our MAGI and hence our subsidy.

My question is really this: how hard is it to calculate what it would do to this year’s subsidy if I withdrew (say) $4000 for these extra purposes? I know that for next year, I will simply add them into my estimated income, and I can play with the amount until I keep my health insurance premiums where I want/need them.

I know I will get an adjustment on my taxes, but am not able to grasp what the scope will be.

FWIW, our MAGI this year filing jointly is about $31K.

Thanks!
With interest rates decreasing again it may be reasonable to finance a new car until you are both on Medicare. You would have to do the math.
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Old 10-01-2019, 07:29 PM   #9
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Originally Posted by RunningBum View Post
Look at IRS form 8962, and table 2 in the instructions. Last year you would've been at about 188% of the FPL ($31K/16,460), which put the line 7 multiplier at .0579. In a somewhat roundabout way that means another $100 in income costs you 5.79% or $5.79, so an extra $4K in income would cost you about $231 annual subsidy. A little more actually because that multiplier goes up with more income. If your subsidy exceeded your premium (meaning you paid 0), it is probably less, or maybe even no impact depending on how much it exceeded the premium.

As you can see from the table it peaked out at 9.56% last year for people between 300-400% of FPL. As I'm in that range, I figure roughly a 10% impact for any added income.

The most important thing in most cases is to not exceed 400% FPL and lose the subsidy entirely (fall off the subsidy cliff). 250% is another important limit if you take part in CSR (cost sharing reductions).
As someone succinctly explained in another post somewhere else on the forum, the actual marginal increase in taxes is quite a bit higher than the factors in table 2 mentioned above would suggest, because the factor is multiplied by your entire MAGI, not only by the amount of increase in your income.

Using the example numbers above and the 2018 Form 8962 numbers:

Base case:

$31,000 / $16,240 = 1.90xxx -> 190% of FPL -> 0.0588 applicable figure
0.0588 * $31,000 = $1,822.80 annual contribution

Additional $100 income:

$31,100 / $16,240 = 1.91xxx -> 191% of FPL -> 0.0592 applicable figure
0.0592 * $31,100 = $1,841.12 annual contribution (*)

Delta:

$1,841.12 - $1,822.80 = $18.32 increase on $100 additional income, or an 18.32% marginal increase even though the applicable figures are all about 6%.

(*) Part of the increase sometimes can be due to rounding and the fact that Table 2 is in 1% increments, but notice that here the increased amount is multiplied by all $31,100 of MAGI, not just the $100 increase in MAGI over the base case.

I think best practice is to run a proforma tax return in November/December using tax software and do sensitivity analysis to additional income, as someone above suggested.
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Old 10-01-2019, 07:45 PM   #10
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Ouch, yes, you are correct. When I add $4000 to the OPs case they went to 213% FPL so a factor of .680, which makes it $585 more they are responsible for, if my quick math is right. Not my situation so I'm not motivated to triple check it, and I agree that doing a tax run is the best way.

Quote:
Originally Posted by SecondCor521 View Post
As someone succinctly explained in another post somewhere else on the forum, the actual marginal increase in taxes is quite a bit higher than the factors in table 2 mentioned above would suggest, because the factor is multiplied by your entire MAGI, not only by the amount of increase in your income.

Using the example numbers above and the 2018 Form 8962 numbers:

Base case:

$31,000 / $16,240 = 1.90xxx -> 190% of FPL -> 0.0588 applicable figure
0.0588 * $31,000 = $1,822.80 annual contribution

Additional $100 income:

$31,100 / $16,240 = 1.91xxx -> 191% of FPL -> 0.0592 applicable figure
0.0592 * $31,100 = $1,841.12 annual contribution (*)

Delta:

$1,841.12 - $1,822.80 = $18.32 increase on $100 additional income, or an 18.32% marginal increase even though the applicable figures are all about 6%.

(*) Part of the increase sometimes can be due to rounding and the fact that Table 2 is in 1% increments, but notice that here the increased amount is multiplied by all $31,100 of MAGI, not just the $100 increase in MAGI over the base case.

I think best practice is to run a proforma tax return in November/December using tax software and do sensitivity analysis to additional income, as someone above suggested.
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Old 10-02-2019, 01:09 PM   #11
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Quote:
Originally Posted by BoodaGazelle View Post
DW and I have a very good subsidy, and pay less than $400 for FL Blue and Dental. As I am 63 and she is 62, we want to keep our income as low as possible until we both get Medicare.

We have enough money in non-IRA accounts to last until then, but just barely. Unfortunately, this means that anything “extra” we do (like vacations or new(er) car), will affect our MAGI and hence our subsidy.

My question is really this: how hard is it to calculate what it would do to this year’s subsidy if I withdrew (say) $4000 for these extra purposes? I know that for next year, I will simply add them into my estimated income, and I can play with the amount until I keep my health insurance premiums where I want/need them.

I know I will get an adjustment on my taxes, but am not able to grasp what the scope will be.

FWIW, our MAGI this year filing jointly is about $31K.

Thanks!
Any home equity to borrow against?

Also, if you suddenly need to replace a vehicle you could lease it instead of buying to cover the gap until you're both eligible for Medicare.
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Old 10-02-2019, 02:54 PM   #12
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Quote:
Originally Posted by SecondCor521 View Post
As someone succinctly explained in another post somewhere else on the forum, the actual marginal increase in taxes is quite a bit higher than the factors in table 2 mentioned above would suggest, because the factor is multiplied by your entire MAGI, not only by the amount of increase in your income.

Using the example numbers above and the 2018 Form 8962 numbers:

Base case:

$31,000 / $16,240 = 1.90xxx -> 190% of FPL -> 0.0588 applicable figure
0.0588 * $31,000 = $1,822.80 annual contribution

Additional $100 income:

$31,100 / $16,240 = 1.91xxx -> 191% of FPL -> 0.0592 applicable figure
0.0592 * $31,100 = $1,841.12 annual contribution (*)

Delta:

$1,841.12 - $1,822.80 = $18.32 increase on $100 additional income, or an 18.32% marginal increase even though the applicable figures are all about 6%.

(*) Part of the increase sometimes can be due to rounding and the fact that Table 2 is in 1% increments, but notice that here the increased amount is multiplied by all $31,100 of MAGI, not just the $100 increase in MAGI over the base case.

I think best practice is to run a proforma tax return in November/December using tax software and do sensitivity analysis to additional income, as someone above suggested.
Or framed differently, the increase in the annual contribution is:

$100 * .0592 = $5.92
$31,000 *(.0592-.0588) = $12.40
$5.92 + $12.40 = $18.32
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Old 10-02-2019, 03:01 PM   #13
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Originally Posted by pb4uski View Post
Or framed differently, the increase in the annual contribution is:

$100 * .0592 = $5.92
$31,000 *(.0592-.0588) = $12.40
$5.92 + $12.40 = $18.32
^ See? More succinct!

ETA: It's the $12.40 in the second line that people don't realize at first.
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Old 10-02-2019, 03:40 PM   #14
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Thanks for the clarification... it is still probable that we will do this, but I will jump on the tax software as early as I can...
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