Managing MAGI

[scrabbler1]

I haven't decided yet. So for now, I am not applying for the subsidy in advance as a reduction of my monthly health insurance premiums. It makes the purchasing process simpler since the system is so screwed up and gives me the flexibility to decide later in 2014. If I do manage my O-MAGI to get a subsidy, I'll get it as a higher tax refund when I file my 2014 tax return in early 2015.

I do not view it as gaming the system in any way whatsoever. If I manage my O-MAGI to get the subsidy it is no different than managing other tax matters to minimize taxes and like FIREd, I paid a lot in taxes over the years and got little in return so I have no guilt at all. If I end up benefiting then I'm one of the unintended consequences of Obamacare.

I agree with this and with pb4uski's later post and with those posts (such as ziggy's) which mention the various cliffs built into the determination of the subsidies. Thanks to some helpful hints from others here a few weeks ago when I hit a few snags signing up in my state's (New York) exchange, I decided to not apply for a monthly subsidy, opting to forgo it and simply reconcile it on the following year's taxes because I always owe money on my income taxes (all of my income in ER is investment income and I have zero taxes withheld). I will use this temporary "overpayment" of my HI as a backhanded income tax withholding and be able to skip a large estimated income tax payment midyear, letting the subsidy cancel out some of my taxes owed the following year.

With regard to the MAGI, mine will be between 300% and 350% of FPL so if there is an unexpected "spike" in the income from one of my investments (it has happened in the last 5 years since I ERed), I don't want that to not only cost me in taxes (which I understand) but also cost me the subsidy because of the "cliffy" nature of how the subsidy is determined. I have a large, unrealized capital loss in one of my mutual funds I can realize through TLH (Tax Loss Harvesting) to reduce my MAGI so I can retain the subsidy, if necessary.

And with regard to those who mentioned how they have paid taxes for years but have derived little or no benefit from at least some of them, add me to that list. Being a childfree person, I have hated paying thousands of dollars in local school taxes every year, taxes not based on income or the number of children one sends to the local schools but on the value of one's property. Since I ERed, my income taxes have fallen (of course), but my local property taxes (which are mostly school taxes) have only risen even after my income dropped after I ERed. So how can I be accused of gaming the system when the system has gamed me?

 

[pb4uski]

While I concede that it can seem unfair how we pay for education, the fact of the matter is that in the long run we all benefit from an well educated population - I just wish that the outcomes were better and the cost was more reasonable.

 

[scrabbler1]

While I concede that it can seem unfair how we pay for education, the fact of the matter is that in the long run we all benefit from an well educated population - I just wish that the outcomes were better and the cost was more reasonable.

Yes, I agree. But my state (New York) already provides an extra school tax rebate for those who elderly (over age 60, I believe) and have low incomes (even if they happen to send childen from their household to the local schools). I have asked my state legislators many times over the years to extend that rebate to low-income non-seniors who send no children to the local schools to address the inequity I have mentioned. (I have never received a single reply, big shocker!?) Seniors and non-seniors alike pay some local school taxes, but those seniors tend to be income-poor, property-rich, and have no kids in the schools, giving them the trifecta of unfairness when it comes to local school taxes. Why can't low-income non-seniors who meet those other criteria also get that benefit? We will still pay local school taxes, just not as much because we send no kids to the area schools.

 

[Willers]

While I concede that it can seem unfair how we pay for education, the fact of the matter is that in the long run we all benefit from an well educated population - I just wish that the outcomes were better and the cost was more reasonable.

+1 As a childless couple we've supported the education of more than a few kids in other families, but I agree that education is the one area that benefits all. I also agree with your statement on costs and outcomes...

To the OP's point, more than a few are attaching a moral component to this subsidy and I'm not sure why. As mentioned before, every law as written has winners and losers and this is no different than farm subsidies, mortgage deductions, rental depreciation, etc, etc, etc. I aggressively take advantage of every legal tax advantage I can. I've yet to hear of anyone that voluntarily sent extra to the government because they felt they had too many deductions. I'd love to hear from anyone that has to get their perspective.

 

[ziggy29]

And with regard to those who mentioned how they have paid taxes for years but have derived little or no benefit from at least some of them, add me to that list. Being a childfree person, I have hated paying thousands of dollars in local school taxes every year, taxes not based on income or the number of children one sends to the local schools but on the value of one's property. Since I ERed, my income taxes have fallen (of course), but my local property taxes (which are mostly school taxes) have only risen even after my income dropped after I ERed. So how can I be accused of gaming the system when the system has gamed me?

My blood pressure dropped considerably when I started looking at school taxes *not* as a payment to educate other people's children, but rather as paying back the cost of my own education.

 

[pb4uski]

My blood pressure dropped considerably when I started looking at school taxes *not* as a payment to educate other people's children, but rather as paying back the cost of my own education.

Great idea!!

 

[NW-Bound]

The schools help keep those kids out of jail, and hopefully get them motivated enough to become gainfully employed later. They then pay SS tax to finance geezers, and also Medicare tax to keep the latter medicated.

 

[ziggy29]

The schools help keep those kids out of jail, and hopefully get them motivated enough to become gainfully employed later. They then pay SS tax to finance geezers, and also Medicare tax to keep the latter medicated.

That too -- sometimes I try to remember "they'll be funding my Social Security and Medicare some day"....

I just hope there are enough decent jobs left for them to do it.

 

[tinlizzy]

Why can't low-income non-seniors who meet those other criteria also get that benefit? We will still pay local school taxes, just not as much because we send no kids to the area schools.

Just a guess - because it would be too hard to verify that you do not have a child - somewhere.

 

[Willers]

The schools help keep those kids out of jail, and hopefully get them motivated enough to become gainfully employed later. They then pay SS tax to finance geezers, and also Medicare tax to keep the latter medicated.

I like being medicated

 

[NW-Bound]

Still a few years short of Medicare eligibility, yet I have been medicated a bit recently (paid for by personal funding).

I'd rather be inebriated.

 

[scrabbler1]

Just a guess - because it would be too hard to verify that you do not have a child - somewhere.

Actually, this is the easy part. On one's state income tax return, those of us who have no children include zero dependents on the form. The state is the one which uses state income tax return data to determine eligibility for the enhanced school tax rebate program for low-income seniors, so all the state has to do is use the same tax form data for us non-seniors.

As for paying school taxes in general, my parents paid local school taxes for many years, a cost they knew they would have to bear when they made the free choice to have children. I am childfree but pay local school taxes used solely to educate other people's children, a decision they made that I had no role in, as if I did have chldren (because the number of children one has plays no role in the amount of local school taxes one pays).

As for Social Security and Medicare, I paid those taxes for many years so that other people before me could collect benefits. So others coming after me paying for mine means that I am breaking even, in theory.

 

[ziggy29]

Actually, this is the easy part. On one's state income tax return, those of us who have no children include zero dependents on the form. The state is the one which uses state income tax return data to determine eligibility for the enhanced school tax rebate program for low-income seniors, so all the state has to do is use the same tax form data for us non-seniors.

Yes, but it's possible to have children and not be able to declare them as dependents. This is the usual situation for non-custodial parents.

 

[scrabbler1]

Yes, but it's possible to have children and not be able to declare them as dependents. This is the usual situation for non-custodial parents.

Then the custodial parent will be able to declare the child as a dependent because the child will attend the local schools where the custodial parent lives. The non-custodial parent's schools will not have the child attending there so that parent should be treated as childfree for school tax purposes.

 

[tinlizzy]

I was thinking more along the lines of a knock on your door by a sweet 20 year old announcing that her mother finally confessed that you are her daddy and she says, "isn't it freaky that I grew up 8 blocks away and never knew you were my dad! I probably passed your apartment on my way to school!!!"

 

[MRG]

I have no problem with it for reasons already stated. When I asked someone from healthcare.gov how to restate my projected 2014 income, that woman freaked. Said I was defrauding the government, hurting folks that really needed subsidies, etc. I just let her go off, calmly asked the process, her response; File an appeal, don't see why I should have to appeal because the site made it unclear where to enter any losses.

MRG

 

[ziggy29]

When I asked someone from healthcare.gov how to restate my projected 2014 income, that woman freaked. Said I was defrauding the government, hurting folks that really needed subsidies, etc.

Very unprofessional. This person should not still have this job if her reaction was really as you described it here.

 

[Kimo]

Sometimes..

My blood pressure dropped considerably when I started looking at school taxes *not* as a payment to educate other people's children, but rather as paying back the cost of my own education.

But what if I didn't go through the school system and became educated on my own and comfortable with my savings at 59 and retired? And for 40 years I paid the school taxes?

 

[ziggy29]

But what if I didn't go through the school system and became educated on my own and comfortable with my savings at 59 and retired? And for 40 years I paid the school taxes?

You can remember why you paid for their education when you receive your Social Security checks that come from their labor.

The bottom line is that as a society, we tend to remember the times we think "the system" has screwed us and ignore the places where "the system" works to our benefit. I'm not calling out anyone specifically; this is just human nature.

 

[Kimo]

Not that I will never take SS but at least for now and the foreseeable future I am not or will not be using SS. (Knock on Wood!!!)

 

[NW-Bound]

Both SS and Medicare are pay-as-you-go systems.

People say that "but, but, but I paid into the system, and I am owed these benefits". They forgot that these were just promises, and promises could be easily broken when there were no more "new blood", just like pensions that got into trouble. If nobody has children, where's the tax to pay for the promised benefits? When there's no money, promises are, well, tossed to the wind. Can't squeeze blood from turnips.

Many Western European nations have such low birthrate that they are now encouraging people to have more than one child. This includes long paid leaves, tax subsidies, etc... A couple of years ago, while RV'ing at the Grand Canyon, I talked with a German couple in their late 30s. They said they got a month off with pay to spend time with their infant, and took the opportunity to visit the US.

 

[47]

Clawback -- Coming back to ACA and MAGI

Leaving the school taxes for a bit..

I read somewhere that the clawback amount is capped based on income level -- which of course becomes uncapped over 400% FPL. So the cliff at 400% FPL remains, and no ramp is available.

I would like to take a look at that primarily to satisfy my curiosity, but I wouldn't rule out one more dimension to this MAGI optimization process -- projected vs, actual!

I am not able to find that information again. Do any of you have that information or link?

Thanks.

 

[sengsational]

47%, If you go to the FAQ on the KFF site, they say that if you go over the 400% FPL, you have to pay it all back. 300 to 400%, married, you pay a max of 2,500. 200 to 300%, married, you pay 1,500 max. Less than 200, married, 600 max. 1250, 750, 300 for singles.

I guess what this tells me is that not getting approved for the subsidy and settling later is not the same as getting approved early, because the full price payer doesn't have access to this benefit.

 

[pb4uski]

But what if I didn't go through the school system and became educated on my own and comfortable with my savings at 59 and retired? And for 40 years I paid the school taxes?

Then you're SOL. Life's unfair. Get used to it. And stop whining.

 

[Kimo]

Then you're SOL. Life's unfair. Get used to it. And stop whining.

Actually, I was responding to another quote...I wasn't complaining....if you read my posts I am not SOL, just confirming what other people have said.

Aloha