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ACA Subsidies with Kids Graduating from College
Old 11-03-2020, 07:51 AM   #1
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ACA Subsidies with Kids Graduating from College

Trying to understand how to best estimate and properly manage AGI for ACA subsidies with my kids graduating from college in 2021.

DS1 and DS2 are graduating in May 2021. DS1 only has one course in the Spring semester to finish a graduate degree, and, as a result of the shift to online learning in higher education, can start working early in 2021 and still complete his studies. However, the job market for his field of engineering is still a long way from recovering, so it may be a while before he is working full time.

DS2 is graduating in May 2021 as well with an undergrad degree. He plans to continue his studies, but the programs of choice for his continued education do not matriculate new students until January 2022. He will take enough hours in the Spring semester to be a full-time student. However, from June through December, he has plans to have a full-time job. However, there is a (small) possibility that he will love his new job and decide not to continue his education.

I have 2 other kids at home along with DW to insure as well.

It is my understanding that if I cover DS1 and DS2 on my ACA policy, then any income the make in 2021 will be added to my income for determining AGI for ACA subsidies.

So, I believe that means that we need there different ACA applications this year:
  1. DW, DD, DS3 and myself
  2. DS1
  3. DS2

Am I correct this will allow to properly segregate income so that the ACA subsidies are best protected for the ACA policy that covers DW, DD, DS3, and myself?

Any other considerations or other ways to handle this situation?
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Old 11-03-2020, 08:27 AM   #2
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A critical factor is if you will provide at least half support or more for each child. That puts them on your 1040 along with their income. That's the 'family size'. So you'll need to coordinate with any kids to make sure they don't claim themselves if you claim them.

If you get tax software, you can enter estimates for things. In the interview, you'll encounter the half support thing, and you can watch the chips fall both ways and maybe then plan some thresholds for income.

Once family size is determined, you estimate income, and your advanced premium tax credit is determined. That will be reconciled on your federal taxes (actual income vs estimated).

The health insurance purchase is kind of a separate thing. I just let my kids use the University student insurance because it was better than the ACA policy (just low co-pays and low deductible, and tied with student health free stuff).

I've found that a kid who provides more than half of her own support, but doesn't have health insurance as part of the job, doesn't get a very good deal from the tax credits, but that was just one data point that never happened (her job did have HI). But in that situation, she would have the option for catastrophic HI, which would be cheaper, and still give access to negotiated rates.
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Old 11-03-2020, 09:08 AM   #3
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Our DS2 graduated from college December 2019 with a teacher degree. We opted to put him on his own ACA plan for 2020 since we had no way of knowing how soon he'd get a job, how much income he'd have, or when he'd get his own employer insurance. It worked out well doing that, since he went from being a permanent substitute, to getting laid off due to covid, to getting unemployment benefits, to landing a full time position in August with benefits. Through July, he also worked half time at Walmart. I would've lost a lot of sleep worrying about his changing income throughout the year.

Our DS3 graduates this coming May. Given the same (if not more) unpredictability for 2021, we plan on putting him on a separate plan for 2021.
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Old 11-03-2020, 10:19 AM   #4
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Lots of things to look at here. The cliff for 5 people is pretty high so depending on your income is there any kind of change going as a family and adding the kids income will put you over the cliff?

I'd say the answer to your question is yes, you are going to need 3 different policies. It won't be the cheapest option, but sometimes you gain from ACA and sometimes you lose.
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Old 11-03-2020, 10:28 AM   #5
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Quote:
Originally Posted by DrBrisket View Post
Trying to understand how to best estimate and properly manage AGI for ACA subsidies with my kids graduating from college in 2021.

DS1 and DS2 are graduating in May 2021. DS1 only has one course in the Spring semester to finish a graduate degree, and, as a result of the shift to online learning in higher education, can start working early in 2021 and still complete his studies. However, the job market for his field of engineering is still a long way from recovering, so it may be a while before he is working full time.

DS2 is graduating in May 2021 as well with an undergrad degree. He plans to continue his studies, but the programs of choice for his continued education do not matriculate new students until January 2022. He will take enough hours in the Spring semester to be a full-time student. However, from June through December, he has plans to have a full-time job. However, there is a (small) possibility that he will love his new job and decide not to continue his education.

I have 2 other kids at home along with DW to insure as well.

It is my understanding that if I cover DS1 and DS2 on my ACA policy, then any income the make in 2021 will be added to my income for determining AGI for ACA subsidies.

So, I believe that means that we need there different ACA applications this year:
  1. DW, DD, DS3 and myself
  2. DS1
  3. DS2

Am I correct this will allow to properly segregate income so that the ACA subsidies are best protected for the ACA policy that covers DW, DD, DS3, and myself?

Any other considerations or other ways to handle this situation?
DS1, and DS2 will need to file their own tax as independent. I do not know which state you are in, but in California where I live, they would need to provide estimated 2021 income in order to determine which ACA plan they are eligible for. If the income is lower than 138% of FPL, they will be eligible for Medical (California version of Medicaid), but not ACA.
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Old 11-03-2020, 10:43 AM   #6
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We opted for the separate plan for one and should have done it for the other the year they graduated. We had one kid who would take off some semesters and work full-time doing contract field work in their major. We just ended up not declaring them as a dependent and having their own ACA plan, one we paid for, rather than risk losing our subsidies by going over the income limit. Policies are relatively cheap for young adults in their 20s. I think we paid around $350 a month for a Bronze plan. But if we lost our subsidies due to unpredictable dependent income, that would have been a subsidy loss of over $2K a month for the two of us.

We didn't think to do that in advance for one who stayed the course more with college. In hindsight I would have put them on their own plan the year they were due to graduate as well. It think would have just been simpler tax-wise to manage rather than having them on our plan for part of the year.
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Old 11-03-2020, 12:31 PM   #7
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FYI - dependent’s income has to be included in your MAGI calc if they earn more than $12,200 according to this site.

https://www.healthinsurance.org/faqs...ies-like-ours/

“A. Subsidy eligibility is based on modified adjusted gross income (MAGI). For your family, your MAGI will include income for yourself and your husband, and it could also include income your son earns at his part-time job – but only if he earns enough to have to file a tax return as a dependent (in 2019, the threshold for a dependent to have to file a tax return for earned income is $12,200 in earned income, but it’s much lower — just $1,100 — if the dependent’s income comes from dividends and interest).”
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Old 11-03-2020, 01:20 PM   #8
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Originally Posted by jabbahop View Post
FYI - dependent’s income has to be included in your MAGI calc if they earn more than $12,200 according to this site.

https://www.healthinsurance.org/faqs...ies-like-ours/

“A. Subsidy eligibility is based on modified adjusted gross income (MAGI). For your family, your MAGI will include income for yourself and your husband, and it could also include income your son earns at his part-time job – but only if he earns enough to have to file a tax return as a dependent (in 2019, the threshold for a dependent to have to file a tax return for earned income is $12,200 in earned income, but it’s much lower — just $1,100 — if the dependent’s income comes from dividends and interest).”
That article is a couple of years old. The filing threshold should be the standard deduction for 2021, which is $12,550. The $1100 threshold for unearned income remains the same.
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Old 11-03-2020, 01:44 PM   #9
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Here's the process I think you need to follow:

1. Collect the facts and circumstances for 2021 regarding your three sons to determine whether they are, for IRS purposes, your dependents or not. Start with the instructions for Form 1040 around page 16, "Who Qualifies as your Dependent". Note that relationship, age, support, residency, and what kind of return they file can matter, as well as some other things depending on where you end up in the flowchart. Note also that they can either be a qualifying child or a qualifying relative - I believe being either makes them count as a dependent for ACA tax family size.

2. Once you know how many dependents you have, you can determine your ACA tax family size. With that, plus your home address, you can determine your FPL here: https://thefinancebuff.com/federal-p...obamacare.html

3. As noted in the previous few posts, if your dependents have to file an income tax return (other than to receive a refund of taxes withheld, and possibly a few other reasons), their AGI will need to be added in on your Form 8962, line 2b. See the instructions for that line of that form at the IRS website.

4. Once you know your tax family AGI and your FPL, and your SLCSP(s), you can figure out your PTC. You can apply for APTC via your state exchange(s). If your tax dependents live in a separate geographic area, they can have their own SLCSP and PTC and ACA plan, but it will all be aggregated on your tax return.

So now to specific answers:

Quote:
Originally Posted by DrBrisket View Post
[1] It is my understanding that if I cover DS1 and DS2 on my ACA policy, then any income the make in 2021 will be added to my income for determining AGI for ACA subsidies.

[2] Am I correct this will allow to properly segregate income so that the ACA subsidies are best protected for the ACA policy that covers DW, DD, DS3, and myself?

[3] Any other considerations or other ways to handle this situation?
Numbers added for reference.

1. No, whether you cover them on your ACA plan is not the determining factor. As noted above, you will have to include their AGI on line 2b of your Form 8962 if both (a) they are your tax dependents and (b) they are required to file a tax return (other than to get refunded federal income taxes withheld, and possibly a few other reasons). Otherwise, you may exclude their AGI from your Form 8962.

2. No, it's irrelevant how many different policies you buy on the exchange. Your subsidy will be based on your tax family size (which in turn is determined by whether or not your sons are your dependents), your address, and your collective AGI.

3. The only other consideration I would mention is that you have both the curse and the opportunity to do tax planning during 2021. For example, if you know what the rules are regarding IRS tax dependents, you can attempt to evaluate which is better: to have them as dependents or not. You may then choose to make decisions about schooling, residency, and supporting your sons to make the facts and circumstances match what you're hoping the outcome to be. That is the opportunity.

The curse is that you may make certain predictions and take certain actions based on your predictions for 2021 that may later turn out not to be the case, which would result in a tax situation and ACA premium calculation that is different than what you predicted or hoped for or would have preferred. For example, you may enroll one of your sons in your ACA plan believing that they will be a full time student for five months in 2021 (which is one of the criteria for a dependent child), only to discover later in 2021 that the son has chosen not to go to school (due to coronavirus, for example). In this case your subsidy may not be what you expect, and you may be required to pay some of it back. They also might have been on the "wrong" insurance plan for the first part of 2021; I really don't know how that's handled.

I'm facing a bit of this curse myself as I have a kid who I thought would be my dependent in 2020 but turned out that he won't be (due to coronavirus messing with his college plans). I will have to face this again in 2021 with my two younger kids; thankfully my oldest is clearly an independent and is headed towards a full time job in January.

...

ETA: I use the term AGI above in many places. Of course for ACA subsidies what really matters is ACA MAGI. For me, my ACA MAGI is equal to my AGI, so I typically equate them. In certain circumstances, they may be different, and you should read "AGI" above to mean "ACA MAGI" pretty much throughout my post.
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Old 11-03-2020, 01:59 PM   #10
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Our DS graduated in June. He started a tech internship in October that will pay him roughly $5500/month. We found it to be most affordable to have him sign up for his own ACA plan - he'll pay about $310/month for a gold plan (bronze was around $225 so it made more sense to get the lower deductible/OOP max and copays).
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Old 11-04-2020, 05:07 PM   #11
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Everyone---Thanks for your replies as they were all very helpful in clarifying my planning.

Just for the sake of completeness, here is where I think I will end up barring any new developments.

DS1: Will apply for his own ACA plan if he does not gain employment that has HI by January 1, 2021 as DS1 will no longer be a dependent on my taxes. He is not eligible for student health insurance from his state university in the spring since he is only taking 3 semester hours and the state university student health insurance continuation plan is very expensive. Having DS1 take additional graduate classes to be eligible for the school HI will likely impact his ability to do well when he starts a full time engineering job.

DW, DD, DS3, and myself: Continue the ACA plan that we are on in 2020. I will submit the application projecting a family size of 4 for 2021 and do my income planning focused assuming a family size of 4.

DS2: After scratching my head about the options illuminated above, the student health insurance through his state university is the best path. While he will be a full-time student for 5 months and qualify as a dependent, it is a high probability that he will earn substantial income even if he only works 4-6months in 2021. DW and I have too many variables already in managing our income for ACA subsidies and the likely income earned by DS2, if combined with our income, has a very good chance of sending us over the ACA subsidy cliff (roughly $20k subsidy). I did verify that if he has student health insurance for the first half of the year (only option available to purchase for spring semester), then he does qualify for a special enrollment period for ACA insurance should the post-baccalaureate employment not provide HI.

With this direction, if DS2 ends up not earning incoming after graduation (who knows what craziness 2021 will bring?!?!?!), we will end up claiming DS2 as a dependent and have some more breathing room on avoiding the ACA subsidy cliff.
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Old 11-04-2020, 08:59 PM   #12
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He can stay on your plan until age 26 even if you don’t claim him as a dependent. Even if he is married. Even if he is a parent.

https://www.healthcare.gov/young-adu...dren-under-26/
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Old 11-04-2020, 09:21 PM   #13
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Quote:
Originally Posted by EastWest Gal View Post
He can stay on your plan until age 26 even if you don’t claim him as a dependent. Even if he is married. Even if he is a parent.

https://www.healthcare.gov/young-adu...dren-under-26/
Yes.

However, if they do so and they receive APTC and he is not their dependent for income tax purposes, then I think they will have to allocate the ACA PTC and the other ACA items between their and his tax returns. See instructions for Form 89862, Part IV, specifically Situation 4.

"Allocation Situation 4 generally applies if another taxpayer
indicated to the Marketplace that his or her tax family would
include an individual you are including in your tax family, or you
indicated to the Marketplace that you would include in your tax
family an individual being included in the tax family of another
taxpayer, and APTC was paid on behalf of the individual. In such
cases, the Form 1095-A sent by the Marketplace for the policy
does not accurately reflect the members of your coverage family
and the other taxpayer's coverage family. Therefore, you and the
other tax family must allocate the enrollment premiums, the
APTC, and the applicable SLCSP premium so that each family is
able to compute their PTC and reconcile their PTC with the
APTC paid for their coverage."

https://www.irs.gov/pub/irs-pdf/i8962.pdf (page 18)
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