Marketplace insurance when dependent child gains employment

[bpgdeg1234]

Received approval for family of 4 with subsidy on healthcare.gov but have yet to pick a plan. Child under 26 just received word today of gaining a contractor employment position starting in the new year but not yet sure if health benefits are included or not.

Child's response is that potential coworkers indicated they just remain on parent's insurance but my sense is they likely remain on one of the parent's company group insurance healthcare plans rather than a subsidzed healthcare.gov individual marketplace plan.

My initial concern is if our child remains a tax dependent in 2018 with this additional income then our family MAGI will likely exceed 400% threshold so we will go over the cliff and have to pay back all subsidy. So instead thinking we should just change the approved 2018 application now and reduce our household size to 3 by removing our child as a tax dependent then child can either get workplace coverage, or if not offered by company, a separate individual market insurance plan.

This approach would alleviate the cliff problem but will cost more and incur multiple deductibles, max out of pockets, etc. so am curious whether there are any other potentials?

Thanks in advance.
bpgdeg1234

 

[MBSC]

So instead thinking we should just change the approved 2018 application now and reduce our household size to 3 by removing our child as a tax dependent then child can either get workplace coverage, or if not offered by company, a separate individual market insurance plan.

This approach would alleviate the cliff problem...

Remember that if the household size drops to 3 the 400% FPL cliff drops to $81,680. See this excellent explanation.

ACA subsidies are based on (among other things) your taxable household size - basically the number of exemptions that you claim on line 6d of your 1040. Once your kids graduate from college, hopefully before 26, they are likely not to be your dependent, and thus not end up on line 6d, and thus adversely affect your ability to qualify for ACA subsidies.

To use my own family as an example, I have three kids, so originally I thought that my target ACA income was $47,700 - 200% of the FPL for a family size of 4. However, since my oldest son age 21 no longer qualifies as my dependent, my target ACA income is in fact $39,580 - 200% of the FPL for a family size of 3.

There is another part of the ACA which requires insurance companies to let kids stay on their parents' insurance until they turn 26, but I believe that rule is distinct from the ACA subsidy rules.

 

[marko]

Remember that if the household size drops to 3 the 400% FPL cliff drops to $81,680. See this excellent explanation.

After running the numbers you may find it better to have the kid quit the job!



Just kidding, but only a little.

 

[bpgdeg1234]

Thanks all for responses so far. I am aware of the household size cliff dropping to $81,680. It seems as though being on own healthcare plan, whether that be through the new employment, if offered, or separately in exchange/individual market may be a reasonable approach.

One other approach, however, that I have seen in looking at the Turbotax forum is a case where a non-dependent child still gets covered under the same subsidized marketplace exchange plan as the rest of family but since a non-dependent is in separate tax household. Upon filing taxes the 1095-A form policy premium, advanced premium subsidy, etc. is distributed between the two household/tax groups on form 8962 via the use of the Allocation of Policy Amounts - Situation 4 where a policy is shared between two tax families.

As long as one of the two tax groups is eligible for premium tax credits then they can apply 100% of the allocation to that group and 0% to the second group. This would allow the child to still be on the same exchange plan as rest of family. Not sure if anyone has heard of this approach or something similar?

Thanks, bpgdeg1234

 

[sengsational]

If you provide more than half of that soon to be employed kid's support, they can be claimed as a dependent, if you don't, then they can't be a dependent.

If you claim them as a dependent, then all their income gets added to yours, and all the rest of the people in your family that have income. That's the critical number which determines the PTC.

You do not need to have everyone in the family on the exchange policy. For instance, I had a college daughter buy insurance through the school, but she still was a dependent, and was included in the family size and increased the PTC.

But in your case, you want to make sure she's not a dependent and so her income isn't part of your family's income, lest you careen over the cliff.

I can't see how you could have a non-dependent covered without including their income; if you add them as a dependent, then you can select them and buy insurance for them. If you don't add them, their name doesn't show up on the system. I could be in the weeds here, so if you figure out something else, I'd be interested in how that works. You talk about sharing the PTC between more than one tax household, which I have heard of, but have no experience with. The problem I see with that is I'd bet the calculation would be done for both families as one, then be split. Well, if the daughter's income would put you over in the single tax family case, so too would it in the split family case.

 

[bpgdeg1234]

If you provide more than half of that soon to be employed kid's support, they can be claimed as a dependent, if you don't, then they can't be a dependent.

If you claim them as a dependent, then all their income gets added to yours, and all the rest of the people in your family that have income. That's the critical number which determines the PTC.

You do not need to have everyone in the family on the exchange policy. For instance, I had a college daughter buy insurance through the school, but she still was a dependent, and was included in the family size and increased the PTC.

But in your case, you want to make sure she's not a dependent and so her income isn't part of your family's income, lest you careen over the cliff.

I can't see how you could have a non-dependent covered without including their income; if you add them as a dependent, then you can select them and buy insurance for them. If you don't add them, their name doesn't show up on the system. I could be in the weeds here, so if you figure out something else, I'd be interested in how that works. You talk about sharing the PTC between more than one tax household, which I have heard of, but have no experience with. The problem I see with that is I'd bet the calculation would be done for both families as one, then be split. Well, if the daughter's income would put you over in the single tax family case, so too would it in the split family case.

From what I read they are in separate tax households so the income of the non-dependent does not get added to the income of the family tax household yet they are on the same ACA healthcare plan. The Healthcare.gov site does make reference to having non-dependents able to be on family plans but it is not very clear whether it was non-subsidized or subsidized and, as you note, I haven't seen a way to do this. There are some examples in the form 8962 documentation that points to the allocation sharing method (Situation 4) with such a case and Turbotax guru "TaxGuyBill" has referenced it in a number of posts on TT site about the PTC being allocated between the two tax households in whatever way you agree but needing to add up to 100% across both tax form submittals.

Just something I'm curious to see if exists and how it works in case ever needed but at this point I plan to go with my non-dependent child enrolling either on the employer workplace plan, if offered, or a separate individual or marketplace plan.

 

[daylatedollarshort]

This approach would alleviate the cliff problem but will cost more and incur multiple deductibles, max out of pockets, etc. so am curious whether there are any other potentials?

We went with a separate policy and not a tax dependent when we had to make that decision in the past. It was too hard to manage our income for the cliff having no idea how much one of the kids with erratic income would make. Policies are cheap for young adults, but losing a subsidy for two 50+ year olds due to going over the MAGI cliff would have been pretty expensive.