ACA and Income Estimation

[SoReady]

Hi,

For our income estimation for 2022 we could be either $60K or $220k (in previous years it has been around $60k). The reasons are around the possibility of buying a new house next year with IRA funds, or not finding the right house and staying put another year. Given current housing market a all cash offer is preferable to contingencies, so this is the reason for using so much IRA funds.

My question is if it is better to declare the high end of income or the lower end initially? Taking the lower end will provide subsidies with the possibility of having to pay it back at tax time. The high end is no subsidies and getting some money back at tax time.

An additional question is if the house purchase goes through and the income declaration changes do I need to notify ACA right away? If I go from declaring, for example, $60k and a house purchase happens in Sept and I notify them I now declare ~$200k, will I need to pay back the subsidies then or at tax time?

Hopefully I have made the scenarios clear and not too confusing.

Thanks,

Bob

 

[PaunchyPirate]

It really is only your own preference to make this decision. Personally, I'd take the advance subsidies and then if I decided to buy the home, I'd just factor in the repayment of the subsidies as part of the "big picture" financials and move on.

You are supposed to notify the government as soon as the income changes so they can then adjust (i.e. remove) the subsidy for the rest of that year. However, I don't believe there is a penalty if you don't notify them when the income changes. You do not pay back the subsidy you obtained up to that date until tax time.

 

[sengsational]

It doesn't matter too much. I'd go with the same thing as the previous application, just because it would require less effort. Then, at the time of the monster funds pull, enter a "life change" or whatever they call it.

 

[cathy63]

We are in a similar situation and I have decided to use the upper estimate, take a lower subsidy during the year, and get a large tax refund if things work out that way. There's some lost opportunity cost by paying in advance and letting the government hold your money, but I think it's relatively small, and I just prefer a 5-figure refund to a 5-figure bill.

Yes, you should adjust your income estimate as soon as you know for sure which way it will go. Your premiums for the rest of the year will go up or down immediately, but the final reconciliation for the first part of the year will not happen until tax time.

 

[RunningBum]

Does a large repayment of the subsidy count toward an underpayment of tax penalty?

 

[xlf11]

I would go with $60k. If closing the house, you then decide to report to ACA for life change or simply paying more estimate tax at IRS. You probably don't get any credit with $220k for a 8.5% contribution for 2022. So just make sure to withhold enough tax at IRS to be under $1k (or pay 100% tax as last year) for avoiding underpayment penalty.

 

[COcheesehead]

You can change your income during the course of the year and the premium credit can be adjusted.

Also don’t forget to add back in any muni income.

 

[SoReady]

Thanks everyone. This is all good information.