ACA and predicting income (plus avoiding DMI)

[NeilDH]

I'm enrolling for our second year in the ACA health insurance marketplace, after this first year where we had some severance income, meaning 2025 will be the first year that our income will be primarily if not almost entirely investment income. As you know, you have to provide an educated guess on your income in order to determine the premium tax credit, which I can do based on my strategy for generating cash for living. My broker tells me I can shoot low, even very low, on the income and the difference will be worked out when I do our tax return in early 2026 -- fine, I'm totally willing to do that even if I must pay a lot at that time -- and that he has heard of some clients not having to repay the full PTC difference at tax time (here in Illinois). That suggests that the gamble to shoot low on the income prediction could pay off a little. Sounds ridiculous, but OK, such is bureaucracy. And I've read up on DMI, data match inconsistency, so I know if I'm predicting less than 50% lower than the previous year's income, I'm OK -- or in any case, so far the Eligibility Letter is not saying I have to provide documentation to account for any income discrepancy. (And I also know that if our income drastically veers from the prediction especially on the high side, you gotta tell 'em.)

What do you think? Have you ever simply aimed low on predicted income like this?

 

[SecondCor521]

It varies by state. My state will ask for an explanation if your estimated income goes up or down by 20%, but they're pretty easily satisfied with any answer it seems.

There is an APTC repayment limitation in the tax code. See the instructions for Form 8962 Line 28 and the table there. That makes it a national thing, not an Illinois thing.

You're expected to adjust your estimated income throughout the year so your APTC also adjusts, although I know people who do not bother and just settle at tax time.

The estimate is supposed to be a good faith estimate, but there are obvious financial incentives to aim low.

 

[NeilDH]

It varies by state. My state will ask for an explanation if your estimated income goes up or down by 20%, but they're pretty easily satisfied with any answer it seems.

There is an APTC repayment limitation in the tax code. See the instructions for Form 9862 Line 28 and the table there. That makes it a national thing, not an Illinois thing.

You're expected to adjust your estimated income throughout the year so your APTC also adjusts, although I know people who do not bother and just settle at tax time.

The estimate is supposed to be a good faith estimate, but there are obvious financial incentives to aim low.

Thank you! Form 8962, to clarify for others.

 

[SecondCor521]

Thank you! Form 8962, to clarify for others.

Whoops, yes, typo. Corrected my previous post.

 

[Texas Proud]

I estimate low but have also made that low estimate...

If you can keep it at a certain low level you can get a silver plan with lower OOP max and copays... I try and get there... and I do try and get the income there but as we all know year end distributions from MFs can be big at times...

 

[NeilDH]

The APTC repayment limitation is a revelation — surprising. You could even call it a loophole. It’s also good to see you mention how the Silver plan options improve. I thought it was too good to be true, but I’ll look more seriously at those now, though they still may not work for me.

 

[disneysteve]

I'm enrolling for our second year in the ACA health insurance marketplace,

We are also going into our 2nd year. Do I actually have to do anything if I just want to stay on the same plan? Do I need to re-enroll? I’ve already gotten notification from our plan with the 2025 rate. That read as if no action is needed if I’m sticking with the plan.

 

[audreyh1]

No action is needed if sticking with the same plan if it is still available in 2025. They usually say something like you don’t need to do anything unless you want to change plans.

 

[sengsational]

There's no big downside to shooting low except the time it might take to put together the documentation they might ask for. If they don't like the proof, they can take away the APTC. But as you were informed, it all washes out to the same total in the end. Or it could be a lower total, as there's that repayment loophole. I never got there, and I can't see that "working" very often, but have no data on that. By shooting low, you're just delaying an expense. Some people would rather have "even" expenses, but paying taxes is a lumpy one, so having a little bigger lump might not make any difference.

 

[jim584672]

The fraud aspect of providing an intentionally wrong estimate it can have some benefits like getting Silver CSRs in the right income bands.

 

[NeilDH]

No action is needed if sticking with the same plan if it is still available in 2025. They usually say something like you don’t need to do anything unless you want to change plans.

I guess you risk being enrolled in a different plan if yours is not still available. And I’d wonder about any change in premium and the premium tax credit. But yes, you don’t have to act if you don’t want to: Automatic re-enrollment keeps you covered.

 

[audreyh1]

I guess you risk being enrolled in a different plan if yours is not still available. And I’d wonder about any change in premium and the premium tax credit. But yes, you don’t have to act if you don’t want to: Automatic re-enrollment keeps you covered.

I don’t remember what they said when they announced our plan was not renewed. They made it clear we needed to choose a new plan for the following year. They probably did indicate what we would be moved to but don’t remember - been a while.

 

[RetiredAndLovingIt]

This is the repayment limits for the ACA for TY 2024.

What’s the most I would have to repay the IRS? | KFF

For the 2024 tax year, if you underestimated your income and received a larger tax credit than you were eligible for, you must repay the difference between the amount of premium tax credit you received and the amount you were eligible for. However, there are dollar caps on the amount of...

www.kff.org

Other things to consider is IRS underpayment penalties. Look into IRS Safe Harbor

 

[Texas Proud]

The APTC repayment limitation is a revelation — surprising. You could even call it a loophole. It’s also good to see you mention how the Silver plan options improve. I thought it was too good to be true, but I’ll look more seriously at those now, though they still may not work for me.

I do think they got rid of the income repayment loophole... just from memory so could be wrong..

It WAS there a few years ago though...

OPPS... I stand corrected with prior post!!!

 

[Golden Mean]

We are also going into our 2nd year. Do I actually have to do anything if I just want to stay on the same plan? Do I need to re-enroll? I’ve already gotten notification from our plan with the 2025 rate. That read as if no action is needed if I’m sticking with the plan.

I have a state exchange and they do it all for me automatically (after the first year). When I log in, the info is all right there; my application status (confirmed, I think?) the (possibly new) plan name, cost, subsidy as well as the status (enrolled).

FWIW, I bump my income up about 5% a year and they haven't asked for proof/explanation for the last two years. They did ask for explanation the first year and when I changed my income estimate mid-year 2023.

 

[Golden Mean]

This is the repayment limits for the ACA for TY 2024.

What’s the most I would have to repay the IRS? | KFF

For the 2024 tax year, if you underestimated your income and received a larger tax credit than you were eligible for, you must repay the difference between the amount of premium tax credit you received and the amount you were eligible for. However, there are dollar caps on the amount of...

www.kff.org

Other things to consider is IRS underpayment penalties. Look into IRS Safe Harbor

Interesting. This is one place I don't gamble since I consider the stakes too high. I would worry I'd somehow become ineligible for ACA if I constantly way under-reported my income which would radically change or end my ER.

 

[Alex The Great]

2025 will be a second ACA year for me. Things got complicated this year, as in addition to investment income I did have unemployment benefit payments for a few months. ACA does not take into account this kind of income for the next year estimation, since obviously this is a one time income. Also they tried to put me on Medicaid this year, filing an application on my behalf because my investment income alone is too low to qualify for ACA. Hope it will settle next year. As it get closer to the NewYear, I plan to raise MAGI with Roth conversion as needed to match estimation.

 

[NeilDH]

Interesting. This is one place I don't gamble since I consider the stakes too high. I would worry I'd somehow become ineligible for ACA if I constantly way under-reported my income which would radically change or end my ER.

We'll see if the premium tax credits are even extended past 2025, or if they'll be reduced. The income estimate may become moot.

 

[Trailwalker]

I figure out the estimate that will give us full use of the credit, along with lowest premium for the desired plan. This year, that was 36k for an HSA bronze plan with our current doctors. We won't owe any monthly premium. I adjust our income to hit that number as close as I can. This will be our third year without any problems and without any documentation requested.

 

[GenXguy]

This is the repayment limits for the ACA for TY 2024.

Other things to consider is IRS underpayment penalties. Look into IRS Safe Harbor

One thing to note is that any ACA PTC payback due when filing does NOT count as underpayment of taxes. I looked into that earlier this year before making estimated tax payments.

 

[TickTock]

What do you think? Have you ever simply aimed low on predicted income like this?

No. I put in my best-guest estimate, the major unknown being divs/distributions on the taxable equity funds. For that variable I use prior year's total.

Our general tax strategy for years has been to hit as close to $0 as possible.

 

[PhotographerBob]

I missed this hot topic, but I don't check in often. I have been on ACA since it started and one thing I have learned after getting letters asking me to explain the difference in actual income vs. estimated is to ALWAYS do a tax extension until Oct. If you file in Apr., they have all that time until your next ACA estimate for the next year to look at it and second guess. If you file in Oct., it is just one month until you can start the next year. I don't know if there is anything "official" about it, but it has worked for the last 6 years after getting letters 2 years in a row. Yes, I still can get the question while applying for ACA "Your income seems different than last year - what gives?" and I just select "change in job". They don't have one for "I'm retired and my income is difficult to predict!"

 

[Aerides]

We started out estimating just under the cliff (when it was the original $64k ish cliff) so we didn't have to be too worried about capital gains in our favor. Nowadays we just estimate based on the prior year and roll with it.

 

[53anddone]

We'll see if the premium tax credits are even extended past 2025, or if they'll be reduced. The income estimate may become moot.

I am assuming there is no way this program is going to exist past 2025. But we will see I guess......

 

[MichaelB]

The Premium Tax Credits are permanent and will continue indefinitely. Any change requires congressional action. The Enhanced PTC, part of the ARPA of 2021, are authorized through tax year 2025. After that they expire unless extended by congress.