They should count income from tax deferred accounts for ACA subsidy

[Cpadave]

Not sure why they don't count investment income from tax deferred accounts for calculating the amount of subsidy one gets. If the purpose is affordability, then all income should be counted. The same reason tax exempt income is included. If our same investment income was earned inside tax deferred vehicle not only we would have not paid income tax on it but would have saved tons of additional tax and qualified for ACA. This is not just redistribution of wealth from have to have nots.

It is bad enough that we don't qualify for subsidy and that our premium has tripled in last 4 years, and now we have to pay $54,000 as additional tax for ACA program.

Just venting here as I will have to write a big check soon.

 

[RunningBum]

It is bad enough that we don't qualify for subsidy and that our premium has tripled in last 4 years, and now we have to pay $54,000 as additional tax for ACA program.

How do you figure that?

 

[Cpadave]

How do you figure that?

Its the additional tax on our investment income this year. Will not be as high or zero going forward.

 

[fh2000]

Not sure why they don't count investment income from tax deferred accounts for calculating the amount of subsidy one gets. If the purpose is affordability, then all income should be counted. The same reason tax exempt income is included. If our same investment income was earned inside tax deferred vehicle not only we would have not paid income tax on it but would have saved tons of additional tax and qualified for ACA. This is not just redistribution of wealth from have to have nots.

It is bad enough that we don't qualify for subsidy and that our premium has tripled in last 4 years, and now we have to pay $54,000 as additional tax for ACA program.

Just venting here as I will have to write a big check soon.

I also see that the employer-paid premiums are exempt. No?

"Employer-paid premiums for health insurance are exempt from federal income and payroll taxes. Additionally, the portion of premiums employees pay is typically excluded from taxable income. "

 

[Cpadave]

I also see that the employer-paid premiums are exempt. No?

"Employer-paid premiums for health insurance are exempt from federal income and payroll taxes. Additionally, the portion of premiums employees pay is typically excluded from taxable income. "

Well, if they have employer paid premium. then one does have to worry about subsidy or paying a high cost to get healthcare.

 

[Spock]

... If the purpose is affordability ...

ACA has nothing to do with affordability. Incomes up to 100K (family of 4 example) get still get subsidies.

 

[Cpadave]

ACA has nothing to do with affordability. Incomes up to 100K (family of 4 example) get still get subsidies.

If income up 100K gets ACA, then why not income over 500K? And in some areas in north east and CA, 100K for family of 4 is really not much to spend on necessities.

What do you think the first A in ACA is for?

 

[RunningBum]

Its the additional tax on our investment income this year. Will not be as high or zero going forward.

Oh, OK. When I pay taxes I just send them in and don't know how they are used. I guess you figured out yours were all specifically going to ACA.

I think some of that went to me. Thank you very much. Please keep it up, I'm planning on the subsidy in 2019. Maybe we can cut out the middle man and you just mail me a check? Oh, but you said it might be zero going forward. Too bad.

 

[Cpadave]

Oh, OK. When I pay taxes I just send them in and don't know how they are used. I guess you figured out yours were all specifically going to ACA.

I think some of that went to me. Thank you very much. Please keep it up, I'm planning on the subsidy in 2019. Maybe we can cut out the middle man and you just mail me a check? Oh, but you said it might be zero going forward. Too bad.

No. I am not talking about income tax. The $54,000 is just the 3.8% additional tax on investment which is all going to ACA. And you welcome.

 

[MichaelB]

This is a policy discussion, so the thread was moved to the more appropriate forum.

 

[ziggy29]

Am I missing something? I'm pretty sure that TIRA/T401K withdrawals *are* part of the MAGI which determines the amount of subsidy, if any. Roth accounts, on the other hand, are not.

I remember when the ACA was preparing to be rolled out and a lot of folks were talking about doing a couple of years of Roth conversions so they could have more excluded income. That was because most retirement income *is* included, save for that coming from a Roth.

 

[golfnut]

I'm confused. Tax deferred income (dist. from a trad, ira) is part of MAGI iro ACA

 

[Cpadave]

Am I missing something? I'm pretty sure that TIRA/T401K withdrawals *are* part of the MAGI which determines the amount of subsidy, if any. Roth accounts, on the other hand, are not.

Yes they are. But not the investment income you don't withdraw. For example Mitt Romney is suppose to have 500M in tax deferred account. The money is earning millions more in investment income. If he was to have no other income, he would still qualify for ACA if he had no distribution from those accounts. This is an extreme case, I am sure there are many who won't qualify if that income was included.

 

[GrayHare]

In general tax is not levied until the income is realized. Deferred income has not yet been realized.

 

[Cpadave]

In general tax is not levied until the income is realized. Deferred income has not yet been realized.

In general tax, no tax is paid on tax exempt income, so why count that toward ACA income?

Deferred income (interest, dividends) are realized as it is added to your account, but not taxed.

 

[SecondCor521]

If income up 100K gets ACA, then why not income over 500K? And in some areas in north east and CA, 100K for family of 4 is really not much to spend on necessities.

What do you think the first A in ACA is for?

Because that is the law that was passed.

Affordable.

No. I am not talking about income tax. The $54,000 is just the 3.8% additional tax on investment which is all going to ACA. And you welcome.

It sounds like you are talking about the Net Investment Income Tax. If that is the case and I have done my math and inferences correctly, you and your family have slightly over $1.4M in investment income in 2018, in addition to whatever wages you earned.

 

[ziggy29]

Yes they are. But not the investment income you don't withdraw. For example Mitt Romney is suppose to have 500M in tax deferred account. The money is earning millions more in investment income. If he was to have no other income, he would still qualify for ACA if he had no distribution from those accounts. This is an extreme case, I am sure there are many who won't qualify if that income was included.

Oh, I see what you are saying. But you referred to "investment income" in the OP, and in the general case, tax law does not consider gains kept within a tax-deferred account to be "income" -- until you withdraw it. That is nothing new with the ACA; that is all over the tax code.

 

[gstillson]

So you had a $1.5 million dollar year for your taxable investments?

Maybe you could look at the bright side here? Not all doom and gloom, right?


Also, if they counted tax deferred accounts, how would they count pensions? The gains would be very obfuscated in a pension but it is unfair not to count it.

 

[GrayHare]

In general tax, no tax is paid on tax exempt income, so why count that toward ACA income?

Because that income has been realized, i.e. it is otherwise accessible and not cordoned off in a tax-deferred account. That's the criteria. Changing criteria of that sort would represent a major overhaul of the system.

 

[eroscott]

Am I missing something? I'm pretty sure that TIRA/T401K withdrawals *are* part of the MAGI which determines the amount of subsidy, if any. Roth accounts, on the other hand, are not.

I remember when the ACA was preparing to be rolled out and a lot of folks were talking about doing a couple of years of Roth conversions so they could have more excluded income. That was because most retirement income *is* included, save for that coming from a Roth.

I haven't seen any doc on ROTH being excluded but I am hoping it is.

Attached UC Berkeley is a pretty nice doc on what is in MAGI for ACA. Via: http://laborcenter.berkeley.edu/pdf/2013/MAGI_summary13.pdf

Screen image:

 

[ziggy29]

I haven't seen any doc on ROTH being excluded but I am hoping it is.

https://www.healthcare.gov/income-and-household-information/income/

"Don’t include qualified distributions from a designated Roth account as income."

 

[RunningBum]

So you had a $1.5 million dollar year for your taxable investments?

Maybe you could look at the bright side here? Not all doom and gloom, right?


Also, if they counted tax deferred accounts, how would they count pensions? The gains would be very obfuscated in a pension but it is unfair not to count it.

Thanks to you and SecondCor for doing the math.

Maybe they should count those games as regular income rather than having an LTCG rate. What would that cost you?

 

[Dtail]

The unrealized gains from stock in taxable accounts don't included either, so how far should this reference be taken?
There are many folks who have figured out how to manage income for tax subsidies and live in areas where the premiums are fairly low at lower MAGI levels.

 

[sengsational]

I "get" the op's rant. "Rich" people can and do get the PTC. I'll tell you why it works this way: it was a process that didn't require inventing new accounting principles. A little window dressing on the well-established AGI, then a few calculations based on actual pricing of policies in each geography, and you're done. Simple, easy to implement, and wrong. And boy I'm glad it's wrong since without the ACA, I'd probably still be working.

 

[Cpadave]

I "get" the op's rant. "Rich" people can and do get the PTC. I'll tell you why it works this way: it was a process that didn't require inventing new accounting principles. A little window dressing on the well-established AGI, then a few calculations based on actual pricing of policies in each geography, and you're done. Simple, easy to implement, and wrong. And boy I'm glad it's wrong since without the ACA, I'd probably still be working.

As I mentioned before, this is not about rich vs poor. Have and have nots. Two families worth 5M, one in taxable account and other mostly in tax deferred account. One can qualify for ACA based on current rules and other will not. In addition he will be asked to pay additional tax toward the cost of the other family and his own premium which he gets no subsidy goes up by 3 times in 4 years. Somehow this is fair.