Possible legislation re: ACA cliff

[niven]

Basing the below on 2020 data as that's what I had available for now...

Ok, I just researched and found the SLCSP for our area for 2020...it was $1,561.60/mo...or $18,739/year. Per niven, subtracting our premium cap under old law ($66k income x the factor for 4x FPL of 9.5%...not sure how you got 9.83%) = $18,739 - $6,270 = $12,469 which should be our subsidy. So increasing our MAGI by $10k using the new law would cause my new max premium to be 8.5% x $76k, or $6,460....which is an increase of only $190. Is that right?

I guess what confused me initially is the large difference between the cost of the silver plan vs. our current bronze plan. The above shows we'd be paying a bit over $500/mo...yet we are only paying $213/mo for our bronze plan.

If that's the case, then given our much higher cap under this new formula, it seems we would not benefit by purchasing the bronze plan, but would be better off with the better coverage of a silver plan since we're going to pay 8.5% x $76k regardless, right? But can we now change plans for 2020 given that we've already chosen?

It's throwing things off by using 2020 SLCSP numbers instead of 2021, and using 9.5% which is not the percentage your 2021 subsidy would have used for calculation before this change in the law. You could get the correct numbers from healthcare.gov by checking 2021 plans and prices again.

But remember, the subsidy calculated for the SLCSP plan would be the same dollar amount applied to the bronze plan, so you should pay less than 8.5%.

Only you can say whether silver would be better, taking deductibles, cost sharing, etc. into account - we're only talking about the premiums.

 

[Finance Dave]

It's throwing things off by using 2020 SLCSP numbers instead of 2021, and using 9.5% which is not the percentage your 2021 subsidy would have used for calculation before this change in the law. You could get the correct numbers from healthcare.gov by checking 2021 plans and prices again.

But remember, the subsidy calculated for the SLCSP plan would be the same dollar amount applied to the bronze plan, so you should pay less than 8.5%.

Only you can say whether silver would be better, taking deductibles, cost sharing, etc. into account - we're only talking about the premiums.

Thanks niven. It won't let me check the SLCSP again on HC.gov because I already have an application out there. I'd have to restart a new application.

 

[erkevin]

On April 1, HC.gov will have all of the new information. You need to go in and update income, etc.

 

[RunningBum]

Basing the below on 2020 data as that's what I had available for now...

Ok, I just researched and found the SLCSP for our area for 2020...it was $1,561.60/mo...or $18,739/year. Per niven, subtracting our premium cap under old law ($66k income x the factor for 4x FPL of 9.5%...not sure how you got 9.83%) = $18,739 - $6,270 = $12,469 which should be our subsidy. So increasing our MAGI by $10k using the new law would cause my new max premium to be 8.5% x $76k, or $6,460....which is an increase of only $190. Is that right?

I guess what confused me initially is the large difference between the cost of the silver plan vs. our current bronze plan. The above shows we'd be paying a bit over $500/mo...yet we are only paying $213/mo for our bronze plan.

If that's the case, then given our much higher cap under this new formula, it seems we would not benefit by purchasing the bronze plan, but would be better off with the better coverage of a silver plan since we're going to pay 8.5% x $76k regardless, right? But can we now change plans for 2020 given that we've already chosen?

No, not at all. The amount of the subsidy is calculated by the difference in the cost of the SLCSP and 8.5% of your MAGI. You can use that subsidy amount to reduce the cost of any ACA policy you choose. The subsidy amount is the same for any plan you choose. The cost difference between plans remains constant with or without the subsidy, unless one of them goes to $0 with the subsidy.

 

[RunningBum]

All I know is right now I pay roughly 8.5% for the cheapest Bronze plan without the subsidy. So to me this means I can get a Silver plan for the same amount, to me that alone is worth it.

If the silver plan cost to you is lowered with the new law, the bronze plan cost will be lowered by the same amount. See my post just above.

 

[niven]

Thanks niven. It won't let me check the SLCSP again on HC.gov because I already have an application out there. I'd have to restart a new application.

https://www.healthcare.gov/see-plans

You can provide family info and income there and view plans and prices.

 

[24601NoMore]

Can you guys check the following and let me know if I understand the subsidies right?

- Second lowest Silver cost plan in our area (2 people): $15,408
- Assume MAGI of $80K
- $80K * .085 = $6,800
- Subsidy: $15,408 - $6,800 = $8,608 - regardless of MAGI being over 400% FPL
- Current (Bronze HMO) plan cost: $13,983
- Subsidized plan cost: $13,983 - $8,608 = $5,375

Is that right?

How do the credits work if someone is already paying non-subsidized rates for 2021? Do you have to wait until filing 2021 taxes to receive the new subsidies, or is there some way to get the insurance company to bill you off the newly subsidized plan cost?

ETA - assuming our plan allows HSA contributions, would contributing for 2021 lower MAGI and hence increase the subsidy?

Thanks..

 

[niven]

Can you guys check the following and let me know if I understand the subsidies right?

- Second lowest Silver cost plan in our area (2 people): $15,408
- Assume MAGI of $80K
- $80K * .085 = $6,800
- Subsidy: $15,408 - $6,800 = $8,608 - regardless of MAGI being over 400% FPL
- Current (Bronze HMO) plan cost: $13,983
- Subsidized plan cost: $13,983 - $8,608 = $5,375

Is that right?

How do the credits work if someone is already paying non-subsidized rates for 2021? Do you have to wait until filing 2021 taxes to receive the new subsidies, or is there some way to get the insurance company to bill you off the newly subsidized plan cost?

ETA - assuming our plan allows HSA contributions, would contributing for 2021 lower MAGI and hence increase the subsidy?

Thanks..

Looks correct to me.

I've seen articles saying maybe by 4/1 the healthcare.gov site will be updated and you can go in and update your account to get the new subsidy. I assume the months already past will have to be reconciled when filing 2021 taxes.

HSA contributions still lower your ACA MAGI and increase the subsidy.

 

[sengsational]

I just looked at the KFF calculator and did some iteration.

I'm on a bronze plan in an area where the SLCSP is high enough to make health insurance "free" all the way to 399% FPL.

Under the old law, I'd go from costing $0 to paying full price if I went over 400%.

Under the new law, every dollar over costs me $0.085.

So, roughly speaking, I've been in the 12% bracket (keeping below 400% FPL). Going over a little bit in 2021 would put me in the 20.5% bracket (12+8.5). Going farther over (more than $80K or so for MFJ) I'd jump to the 30.5% bracket. No thanks!

One might find a way to argue that filling up the 20.5% bracket is a good idea, but I'd be surprised if someone purposefully Roth converts their way too far into the 30.5% bracket.

 

[RunningBum]

If you have any qualified dividends or LTCGs, you'll have a window between 20.5 and 30.5 where you are in the 12% bracket but additional income pushes those into being taxed at 15%. 12%+15%+8.5% for 35.5% total. So be careful about converting to the top of the 12% bracket. Where you probably want to stop is the top of 0% LTCGs/Qdivs.

 

[sengsational]

If you have any qualified dividends or LTCGs, you'll have a window between 20.5 and 30.5 where you are in the 12% bracket but additional income pushes those into being taxed at 15%. 12%+15%+8.5% for 35.5% total. So be careful about converting to the top of the 12% bracket. Where you probably want to stop is the top of 0% LTCGs/Qdivs.

Right. Thanks. Having basically no after tax money makes me lazy when it comes to considering those capital gains and qualified dividends things. I do iterate with the tax software in December to try and find the sweet spot, though.

 

[niven]

I just looked at the KFF calculator and did some iteration.

I'm on a bronze plan in an area where the SLCSP is high enough to make health insurance "free" all the way to 399% FPL.

Under the old law, I'd go from costing $0 to paying full price if I went over 400%.

Under the new law, every dollar over costs me $0.085.

So, roughly speaking, I've been in the 12% bracket (keeping below 400% FPL). Going over a little bit in 2021 would put me in the 20.5% bracket (12+8.5). Going farther over (more than $80K or so for MFJ) I'd jump to the 30.5% bracket. No thanks!

One might find a way to argue that filling up the 20.5% bracket is a good idea, but I'd be surprised if someone purposefully Roth converts their way too far into the 30.5% bracket.

If your maximum subsidy (SLCSP - 8.5% x ACA MAGI) is greater than the cost of the bronze plan, you should have some room to go over without getting hit with the extra 8.5%, right?

In your case (similar to mine), the subsidy only has to cover the bronze plan premium. I can push up to 463% FPL without reducing my subsidy below what pays for the bronze plan.

 

[FANOFJESUS]

If you have any qualified dividends or LTCGs, you'll have a window between 20.5 and 30.5 where you are in the 12% bracket but additional income pushes those into being taxed at 15%. 12%+15%+8.5% for 35.5% total. So be careful about converting to the top of the 12% bracket. Where you probably want to stop is the top of 0% LTCGs/Qdivs.

On here you just have to pay some taxes on what is over the 12% bracket. Is that right?
Tax Calculator - Estimate Your Income Tax for 2020 and 2021 - Free!
Example 55k of Qualified Dividends and
Long Term Capital Gains is a bill of $289 would that be right?
That is 2k over the 12% bracket.

 

[Looking4Ward]

Well this is certainly interesting.

I've already filed my 2020 tax return. My MAGI overshot and put me in the 301-400% FPL bracket thanks to a very large Wellington distribution in December.

So I had to pay the $2700 ACA penalty.

Will I get this back now?

 

[SecondCor521]

Well this is certainly interesting.

I've already filed my 2020 tax return. My MAGI overshot and put me in the 301-400% FPL bracket thanks to a very large Wellington distribution in December.

So I had to pay the $2700 ACA penalty.

Will I get this back now?

Well it's not a penalty, but if your Form 8962 shows that you received too much APTC, then you are entitled to get back your repayment based on the new tax law. I think this will be the amount on line 29 of Form 8962.

The details of how and when you'll get the money back are still being worked out by the IRS. They're asking you to wait and not do anything yet:

https://www.irs.gov/newsroom/irs-statement-american-rescue-plan-act-of-2021

 

[Fermion]

Well it's not a penalty, but if your Form 8962 shows that you received too much APTC, then you are entitled to get back your repayment based on the new tax law. I think this will be the amount on line 29 of Form 8962.

The details of how and when you'll get the money back are still being worked out by the IRS. They're asking you to wait and not do anything yet:

https://www.irs.gov/newsroom/irs-statement-american-rescue-plan-act-of-2021

It is all such a mess now and confusing. I think it would be a lot easier just to say nobody has to pay tax in 2020, call it a muligan.

 

[Looking4Ward]

Well it's not a penalty, but if your Form 8962 shows that you received too much APTC, then you are entitled to get back your repayment based on the new tax law. I think this will be the amount on line 29 of Form 8962.

The details of how and when you'll get the money back are still being worked out by the IRS. They're asking you to wait and not do anything yet:

https://www.irs.gov/newsroom/irs-statement-american-rescue-plan-act-of-2021

Thanks! That's great!

And you are correct - not a penalty, but a repayment that is capped at $2700.

 

[teejayevans]

It is all such a mess now and confusing. I think it would be a lot easier just to say nobody has to pay tax in 2020, call it a muligan.

I like the way you think.[emoji2]

 

[FANOFJESUS]

My guess is that the government will extend the tax deadline to June 15th.

 

[explanade]

What is the 8.5% cap, if your premiums end up over 8.5% of AGI, you get some rebate at the end of the year?

Or would it include out of pocket payments you made towards your deductible as well?

 

[scrabbler1]

Well it's not a penalty, but if your Form 8962 shows that you received too much APTC, then you are entitled to get back your repayment based on the new tax law. I think this will be the amount on line 29 of Form 8962.

The details of how and when you'll get the money back are still being worked out by the IRS. They're asking you to wait and not do anything yet:

https://www.irs.gov/newsroom/irs-statement-american-rescue-plan-act-of-2021

Speaking of Form 8962, I was trying to figure out how that form will change for 2021, compared to 2020.

form: https://www.irs.gov/pub/irs-pdf/f8962.pdf
instructions: https://www.irs.gov/pub/irs-pdf/i8962.pdf

Line 6 determines eligibility based on % of FPL. That test should disappear.

Line 7 gets a % of MAGI from a chart (based on where you live) in the instructions. I expect that chart to change based on the newer, lower percentages in the new law. For example, 200 (% of FPL) would be 0.0200 instead of something in the 0.0640 range. Then 250 would be 0.0400 instead of something in the 0.0820 range. I assume straight-line interpolation would cover the percentages in between (which is where my 2021 MAGI should be).

The rest of the form through Line 29 (Part III) should operate the same as before. I don't know about later sections because they are not relevant to me.

Could it be this simple?

 

[RunningBum]

What is the 8.5% cap, if your premiums end up over 8.5% of AGI, you get some rebate at the end of the year?

Or would it include out of pocket payments you made towards your deductible as well?

No, if 8.5% of your AGI is less then the SLCSP, you'll get a subsidy for the difference. If you are under 400%FPL, a lower % than 8.5% is used. Other medical payments you made have nothing to do with this.

 

[explanade]

No, if 8.5% of your AGI is less then the SLCSP, you'll get a subsidy for the difference. If you are under 400%FPL, a lower % than 8.5% is used. Other medical payments you made have nothing to do with this.

What is SLCSP?

And when does it get determined if your premiums are over 8.5% of whatever measure they're using?

When you file taxes?

So for instance when you file your 2021 taxes and you ended up paying over 8.5% of your 2021 AGI, they would give you a tax credit or a deduction to claim on your return?

 

[erkevin]

SLCSP second lowest cost silver plan
You apply at healthcare.gov and estimate your income for the year. The govt uses that for the 8.5%. At tax time, your true income is known. If it was lower than your estimate, you get a tax credit. If higher, additional tax is owed.

 

[explanade]

Hmm, when can you apply for this?

So does it matter if you pay for the Bronze plan?

As long as the Silver plan for your market is above 8.5%, you'd get a credit?