Varied Income and ACA Subsidies

[teachme]

Been reading and searching and as of now unable to locate a similar situation and/or my searchfu is severely lacking.

If someone has erratic/varied income in retirement how does it work with ACA subsidies?
Example annual income
2021 - 250K
2022 - 250K
2023 - 60K
2024 - 70K
2025 - 200K

If I'm understanding correctly the ACA subsidies can be paid directly each month so we would just pay the difference however if I underestimate/overestimate my income do I just settle with the IRS when I file taxes?

Spouse and I are both working but will probably be quitting within the next 12 months. Our expenses are within the lower bounds of expected income.

 

[DireWolf]

For premiums, it is all going to get reconciled when you pay taxes.

To the best of my knowledge, from researching for my own needs, here’s the skinny on the rest:

The one place it seems to really matter is for ending up in the CSR window. For instance, say you estimate your income will be low enough to be in the sweet spot of 138-200% FPL. You get a super sweet enhanced silver plan that acts more like a platinum. Copays are low, MOOP is low. At the end of the year, you get a windfall (or decide to do a taxable event) that pushes you out of the window. Your subsidy will now be lower, and you’ll pay that on taxes, but they aren’t going to claw back copays and such. If you do this year after year, perhaps there’s consequences, but for an honest one-off thing, it appears okay.

Conversely, if you estimated a higher income but came out lower for the year, you would miss out on the CSR advantages. If you get midway through the year and realize income will be different, you can (and I think are supposed to) go to healthcare.gov and update your account and take advantage (or lose advantages, as the case may be, I suppose).

 

[cathy63]

If I'm understanding correctly the ACA subsidies can be paid directly each month so we would just pay the difference however if I underestimate/overestimate my income do I just settle with the IRS when I file taxes?

Yes, you will receive a form 1095-A from the exchange and you will use the information on it to fill out form 8962, which you will file with your tax return. If you underestimate your income, then form 8962 will show that you need to pay back some of the premium assistance you received and that's added to your tax due. If you overestimate, then the premium assistance you were eligible for will be added to your refund.

As DireWolf points out, if you are eligible for Cost Sharing Reductions on your co-pays, the only way to claim them is to choose a silver plan and provide an income estimate that makes you eligible for them. If you don't expect to use many medical services, and won't have many co-pays, then it's often cheaper to get a bronze plan and forego the CSRs.