ACA and working kids

[jschner]

Quick question for the experts. I retired a couple years ago with my wife in Arizona and I just turned 59 1/2 this month, wahoo! Access to my ROTH income now which can provide up to $100k a year if needed.

We have two kids living with us ages 22 and 20 and have an ACA Silver plan. I sold enough stock three years ago to live off savings to make our income look like we are just above Medicare levels, estimate about 45k/year for the four of us. That got us an ACA plan at $45/mo and around a $3K deductible which my wife has used every bit of that. Probably more health issues to tend to next year.

Anyway, I will have some interest income and planned to take 401k funds or sell stock minus kid income to meet the $45k estimate. My younger son makes about $25K and will no longer be a dependent on my taxes.

So for us to stay the course, is it still as simple as making up the difference so total household income is $45k and not see any penalties or issues? Or should we be planning to kick him off our ACA plan and we lower our amount to ~$34K and he get his own ACA plan?

Our older son will probably be working next year as well so this applies to him as well. Can we keep this low income plan going for a few more years or are we going to run into some issues?

 

[SecondCor521]

ACA subsidies are based in part on the idea of "tax families". Your tax family has been you and your spouse and your dependent children. Your family size has been 4.

The subsidy is calculated based on the aggregate AGI of the tax family. Dependent children's AGI is included *if they were required to file a tax return*.

Once children are no longer dependent, they become their own tax family of one, and their ACA subsidy is based on their AGI and their family size. This has two effects on the parents' situation: the kid's AGI is no longer included, and the parents' family size decreases by one.

If you know your family size and AGI are going to change as your kids become tax independents, you can (and should) go to your ACA marketplace and adjust your application to reflect the new information. In practice, it can be hard to know sometimes if your kids are going to be tax independents ahead of time; in my family we just took our best guess and then sorted it out at tax time.

If your kids do end up being tax independents but they were covered by your ACA plan, then you can essentially divide up the subsidies between the tax families using Part IV of Form 8962.

Whether you should raise or lower your income as a result of your kids becoming tax independents depends on the entirety of everyone's tax situations - the correct answer is "it depends".

 

[jschner]

OK so for income tax neither one of my sons qualify as dependents for tax reasons, but for ACA, they both qualify as family members. So I really need to do the math see if it is better for them to have their own and see which family size situation works best for the incomes we have. Maybe 4 and 0 or 3 and 1 or 2 and 1 and 1 family situations for next year need to weighed. I'll work on that, thanks.