Itemized Deductions and ACA

[bizlady]

Assuming we can itemize our deductions (due mostly to our premiums for healthcare insurance), and assuming we will be eligible for an ACA healthcare subsidy, is it reasonable for me to assume that any subsidy tax credit we get in 2015 (in other words from filing our 2014 tax return), would be have to be deducted from our medical expenses in 2015 when we file in 2016??

 

[Shanky]

I believe it is you MAGI (Modified Adjusted Gross Income?) that matters, so deductions like medical expense, premiums, charity, mortgage interest, personal deductions won't help you reduce your MAGI. Health care savings account contributions, 401K contributions will reduce your MAGI.

Someone more qualified then I can explain it to you.

 

[bizlady]

We are not concerned about MAGI, but you bring yet another interesting point, will subsidies one year count as income the next?? Essentially that is my question for some tax planning in 2016.

 

[scrabbler1]

Bizlady, I have been wondering the same thing. In my projected (2014) income tax spreadsheet, I have been unable to include how the ACA subsidy will work its way into the Form 1040 yet. For now, I have been assuming the subsidy will reduce my deductible medical expenses on Schedule A (possibly making me not even file a Schedule A). I hope the IRS will have Schedule A and Form 1040 available to view before the end of this year in case I need to make any last minute acts to minimize my 2014 tax liability.

 

[kaneohe]

bizlady........I have no idea what the right answer is but your thought sounds reasonable to me based on this:" Most consumers receiving premium subsidies will receive it in the form of an advanced tax credit, with the subsidy applied directly to the cost of their insurance."

I don't know what the tax form will look like but based on the above quote
if you receive an advanced tax credit that exactly matches what your final tax credit is, then there is no adjustment in credits at the end of the year so you know exactly what your medical premium expenses were and there would no reason to have to make any adjustments. However if your advanced tax credit were lower than the final calculated tax credit, then you paid too much in premiums and would have a tax credit presumably to make up for that .
That means your premiums in the earlier year were exaggerated and presumably you would have to reduce the claimed premiums for the following year by that amount. free opinion worth that same amount.......

 

[Animorph]

I did have sort of this problem with a state tax break for a solar water heater. It came off the state taxes OK, but that reduced my state taxes, which lowered my federal deduction for state income taxes. So I paid federal taxes on that tax break money.

I would think, with no other information than getting a tuition tax credit previously, that a federal ACA tax credit is not something that would show up as income next year and would not show up in state taxes either.