ACA Income Criteria

[golfnut]

Can somebody explain reasons why there is a aca income cliff. For example for a family size of 2's income is over $63,xxx, the subsidy is zero but if slightly under, it's apprx. $300.

Just want to know the logic of this and why it's not a gradual decrease based on income over $63,xxx? Maybe there is no logic.

Also, if one is withdrawing pretax from a 401 k, is there any way of reducing the magi besides hsa contributions and ira contributions?

 

[REWahoo]

Can somebody explain reasons why there is a aca income cliff. For example for a family size of 2's income is over $63,xxx, the subsidy is zero but if slightly under, it's apprx. $300.

Just want to know the logic of this and why it's not a gradual decrease based on income over $63,xxx? Maybe there is no logic.

The reason should be obvious: it's a govt. program created by Congress.

 

[golfnut]

REWahoo, thanks for the response. Anyone else want to chime in?

 

[photoguy]

I don't think there's anybody that likes the cliffs in ACA. It seems like a stupid design that can harshly penalize marginal income.

I suppose the benefits are (1) that it's simpler than a sliding scale and (2) reduces costs by making people over the cliff pay more.

Also, if one is withdrawing pretax from a 401 k, is there any way of reducing the magi besides hsa contributions and ira contributions?

Business and capital losses.

 

[ziggy29]

For one thing, the ACA as passed was an unfinished product due to peculiarities in our political process that triggered when the majority party lost its filibuster-proof majority before the House and Senate versions could be reconciled. The result is that a lot of the kinks that usually get worked out in conference committee, never made it to conference committee, forcing the Senate to take a simple majority vote on accepting the flawed House version of the bill as is.

The cliffs are one of the things that really need to be fixed about the law. At least our graduated income tax is set up that an additional dollar of income won't cost you more than a dollar in increased tax burden, but go just over one of the ACA cliffs, and that dollar of income could cost you hundreds, even thousands, in increased taxes and/or reduced subsidies.

It has probably given a new growth area for CPAs and tax preparers, though, in terms of helping clients engineer an appropriate income to keep them just below a "cliff".

 

[GTFan]

REWahoo, thanks for the response. Anyone else want to chime in?

There is no other answer - it's a flawed law with unintended side-effects that are slowly becoming apparent to everyone that either has to pay a penalty or sign up with increasingly reduced coverage every year.

Unfortunately with the current climate meaningful fixes will not be happening.

 

[karen1972]

WELCOME to government programs.

Actually the answer is EVERY govt subsidy program that I know if is done like this and it is a MAJOR systemic flaw in the way all these programs work, so I wouldn't expect ACA to be an exception. Honestly it is the major reason the poor never get "out". You can't unless you somehow get lucky and are able to "jump the hurdle". If people really want to help, this would be a major change to make in all social programs, a phasing out rather than sharp cutoff. I call it my hand up rather than hand out social change... its a passion project for me.

I mean even something as simple as reduced school lunches, you could get a 10 cent an hour pay increase = $200/year increase and push you over so you are now full price. Full price lunch tickets are almost often $1.50 more pre ticket x say 2 kids or $3/day but your only making 80 cents a day more... so now how do you make up that $2.20 deficit? Even Free to Reduced is usually 40 cents * 2 = 80 cents .. but your 80 cents is taxed so still negative. WELCOME to government programs.

 

[MBSC]

The ACA cliff is dependent on age, family size, SLCSP, and if premiums are community rated within the state. In general, the subsidy cliff impacts those age 50-64 because their premiums are high. The younger folks with lower premiums have a sliding scale to zero subsidy before the 400% FPL cutoff.