2023 ACA Subsidy Repayment Limits

[RetiredAndLovingIt]

Just sharing for anyone that might be interested.
There’s a cap on how much you need to pay back if you exceeded you income estimate. The cap varies depending on your Modified Adjusted Gross Income (MAGI) relative to the Federal Poverty Level (FPL) and your tax filing status. It’s also adjusted for inflation each year.

Here is a link to the full article with the numbers from The Finance Buff

https://thefinancebuff.com/pay-back-aca-health-insurance-subsidy-tax-credit-cap.html

I was running my tax estimates tonight on the vita practice site and it looks like they have not updated their program to reflect these limits yet so I had to hunt down the numbers to verify.

 

[SevenUp]

I was running my tax estimates tonight on the vita practice site and it looks like they have not updated their program to reflect these limits yet so I had to hunt down the numbers to verify.

That's pretty bad if those haven't been updated for TY2023 in the program you are using. One of the Tax estimation tools listed there (the toolbox one) has those limits for TY2024 already, let alone TY2023.

 

[PaunchyPirate]

Since my year-end December 2023 monthly statement from Schwab already showed up in my account, I decided to plug in some numbers into TurboTax to see how bad things were.

I had estimated my MAGI at $40k for 2023 ACA subsidy calculations. I knew that would be a little low, but it was the same amount I used for 2022 and the Pennsylvania exchange just used the same number for 2023 by default (and pre-approved my subsidy based on that, so I let if fly).

Well, fortunately for me, I earned quite a bit more income in 2023 due to much higher interest income, higher dividends, and a nice bonus from Schwab for switching my accounts to them. To the tune of a $62k MAGI. Income is a good thing!

Unfortunately, its looking like I'll have to pay back almost $2,900 in advance ACA subsidies that I used thru the year to decrease my monthly premiums. I'm well above the repayment limitation thresholds, so I have to pay it all back. Such is life.

For 2024, the state again used $40k as my pre-approved MAGI estimate and automatically calculated a subsidy level based on that. I'll have to decide whether I go thru the motions to adjust my MAGI estimation upward or just let it ride for 2024 and pay at tax time. I don't think I'll be at $62k again since I won't have the Schwab bonus and I also am switching to an HDHP plan which will allow me to contribute (and deduct) HSA contributions in 2024. So I may just let it ride and see how it ends up.

 

[RetiredAndLovingIt]

That's pretty bad if those haven't been updated for TY2023 in the program you are using. One of the Tax estimation tools listed there (the toolbox one) has those limits for TY2024 already, let alone TY2023.

Actually it turned out that I was the problem. My estimated income was too high because I based it on the 2023 FPL numbers when I should have used 2022. I finally figured out what I did wrong and luckily I have not done my final Roth Conversion yet so I can reduce the amount and stay under 200% and be capped at $350 payback.

 

[braumeister]

Since my year-end December 2023 monthly statement from Schwab already showed up in my account

Wow, you must have the magic touch. I almost never get my Schwab monthly statement until the 3rd of the month.

 

[PaunchyPirate]

Wow, you must have the magic touch. I almost never get my Schwab monthly statement until the 3rd of the month.

Me either! You might give a check. I was surprised to find all 4 of my statements there this morning. They must want to close the books on the year badly.

 

[perinova]

I am in the final stretch on my federal tax return and realized I will have to repay $440 of the subsidy.

What I found out is that I can put a deductible IRA of $3000 and eliminate the repayment. That is a reverse tax of 13.3%.
I didn't think the deductible IRA would reduce the MAGI, but that is what the tax software shows.

When, the RMDs will kick-in my income would have to be $180k to reach the 13.3% tax rate. I don't think I will reach that threshold so if I don't need the 3000 now...

 

[cathy63]

I am in the final stretch on my federal tax return and realized I will have to repay $440 of the subsidy.

What I found out is that I can put a deductible IRA of $3000 and eliminate the repayment. That is a reverse tax of 13.3%.
I didn't think the deductible IRA would reduce the MAGI, but that is what the tax software shows.

When, the RMDs will kick-in my income would have to be $180k to reach the 13.3% tax rate. I don't think I will reach that threshold so if I don't need the 3000 now...

Yes, a deductible IRA contribution is a valid way of reducing MAGI to avoid repayment of the APTC. Any of the adjustments that show up on Schedule 1 Part II will work, but most of them aren't something you can arrange at the last minute. An HSA contribution is the other one that can help in this situation. Obviously you have to meet the qualifications for either type of contribution.