ACA Reimbursement Question

[Islandtraveler]

2017 was the first year that I got my HC insurance through the ACA exchange. Due to a very generous stock market, I was brutally thrown off the cliff of my $8,000 subsidy. (Not that I am complaining!) Since tax day is around the corner, I am wondering how the government will deal with my ineligibility. Will they notify me of money owed? Should my accountant tell me? Will I incur a penalty? Any feedback would be appreciated.

 

[scrabbler1]

I, too, went over the ACA premium subsidy cliff in 2017 thanks to an unusually large cap gain distribution at the end of the year.


This did not make me ineligible for enrolling in another exchange plan for this year, nor did it affect my being able to get a subsidy. What did happen, however, is that I had to return the subsidy I had received in 2017 as part of my 2017 federal income tax return (Form 8962) which reconciles the subsidy you received versus what you should have received (zero, in my case).


What I don't know yet is how going over the ACA subsidy cliff will impact my ability to receive a subsidy in 2019. The exchange seems to use the income from 2 years back, or the last filed tax year, although the income I entered when I enrolled was a self-estimate. (I live in New York, as you do.)

 

[zinger1457]

Have you completed your taxes for 2017? As scrabbler stated reconciliation will happen when you complete your taxes, IRS form 8962. It will show up as tax owed on your 1040 assuming you had the subsidy payment sent to the insurance company. I recall reading an ACA article that stated the IRS may be willing to help (payment plans, no interest/penalty) for those that have to pay back a subsidy because of unusual excess income circumstances similar to yours so if the payback is an issue you may want to contact the IRS..

 

[SecondCor521]

What I don't know yet is how going over the ACA subsidy cliff will impact my ability to receive a subsidy in 2019. The exchange seems to use the income from 2 years back, or the last filed tax year, although the income I entered when I enrolled was a self-estimate. (I live in New York, as you do.)

Exchanges in fact use your estimated income for the year in question. So this fall, you and everyone else using the ACA will estimate your 2019 income and tell that number to the exchange. If they accept your estimate, then you'll get your subsidy based on that, then reconcile with your actual 2019 income when you do your taxes in early 2020.

Exchanges can ask you to explain your estimate but I've never heard of a case where the exchange "overrode" anyone's estimate based on prior year tax returns. In other words, if your 2017 and 2018 tax returns show an AGI of $100K and you provide a reasonable explanation and estimate of $40K for 2019, the exchange will probably accept it.

As far as I can tell, there is no feedback loop to check your estimates against your actual. In other words, if you estimate $40K for 2019 and end up earning $100K in 2019, then you just pay back your subsidy on your taxes and then you provide a new estimate for 2020, which could be $40K again, or $100K, or pretty much any other number that you can justify. At some point this may change, but I think it's not very high on anyone's priority list to address.

 

[GTFan]

I think he's correct that they look back 2 years to verify your estimate, but as you said if you can explain it then you can submit a lower estimate and subsequently get approved (after initially getting a conditional approval subject to verification). The look back allows you to submit an app that is approved right away if your estimate is in the ballpark of what you reported before, and that's what we've had the last couple of years.

 

[SecondCor521]

I should probably add that I made the mistake of leaving out the fact that there are multiple exchanges, and there are probably similarities and differences in how they do things. My previous post was my experience and impression with how they do things in my state (which runs their own exchange). These obviously may not apply in other states/exchanges.

 

[Rianne]

The ACA subsidies are based on MAGI. So we underestimated our income for 2017 by @ 5K. They adjusted our taxes by a few hundred $$, but we got the lion's share of the subsidy. You should try to guesstimate your MAGI ahead of time.

 

[mh]

I just take the hit and pay my monthly health care in full and get any subsidy for the year back once my return was filed. Luckily I have the cash flow luxury of doing so.

 

[ocean view]

I just take the hit and pay my monthly health care in full and get any subsidy for the year back once my return was filed. Luckily I have the cash flow luxury of doing so.

I do this too. And there’s the added benefit of no estimated Fed payments to make (still have to do state though).

 

[gauss]

I do this too. And there’s the added benefit of no estimated Fed payments to make (still have to do state though).

The may be advantages if you can truthfully convince the Marketplace to grant APTC (ie up front subsidies) as opposed to the more simple strategy of just cash-flowing it yourself.

If at the end of year you still qualify for a subsidy, but it is much lower than you expected, your repayment liability may be capped.

This cap is calculated on line 28 of IRS Form 8962 and is based upon how close your MAGI is to the 400% cutoff.

Unfortunately for OP, the APTC will need to be repaid in full due MAGI over 400% of FPL. This will be calculated on form 8962 and carried over to form 1040.

-gauss

 

[GTFan]

Also, if you can safely estimate your income to fall within 250% of FPL you can get CSR'd Silver plans that are usually better than anything else. And you don't lose the CSRs if your income goes above the brackets (150%, 200%, 250% of FPL for the different CSR levels), you just pay the diff in APTC and move on.

So it's not just the repayment cap, it's also better policies.

 

[Bir48die]

On your 1040 second page and halfway down you will see the penalty for your SRP (shared responsibility payment). Depending on how much you under reported your estimated income the penalty should be under $700. However it's not just off your income, it is added right to your tax liability.

You can go on Healthcare.gov at any time and adjust your estimated income so your shared payments can go up mid year if you don't want to take the chance. On the other hand, if you over report your income, you will get a credit back at the end of the year adjusted in the same area on your 1040.

 

[MBSC]

On your 1040 second page and halfway down you will see the penalty for your SRP (shared responsibility payment). Depending on how much you under reported your estimated income the penalty should be under $700.

The shared responsibility payment is the penalty for not having ACA compliant coverage. It is unrelated to the PTC. If a person has to return a large amount of PTC, they may be subject to a small underpayment of tax penalty.

You can go on Healthcare.gov at any time and adjust your estimated income so your shared payments can go up mid year if you don't want to take the chance.

Be careful about reporting a higher income mid-year if you are receiving Silver Plan CSR. This can reduce the amount of CSR for the remainder of the year thereby increasing your cost sharing. In this scenario, it is usually recommended the person increase their quarterly estimated tax payments instead or just reconcile at tax filing. These alternative methods do not impact CSR.