Calculating income for Affordable Care Act

[KarlH]

I retired early last year, and have been trying to determine how income is calculated when purchasing an ACA plan. I no longer get any W2 statements, but collect from an inherited IRA for the bulk of our expenses. DW is working, but maximizing retirement contributions to the full 26,000 max, which reduces her take home pay to around $1500/month. We are paying into her work plan around 1200/month for family health and dental.

Does retirement income taken from the inherited IRA (which I pay taxes on) count in the income calculation? Likewise is my wife's take home pay used versus gross income. It seems silly to ask, but depending on whether it's just W2 net income, there's a big difference.

 

[Dtail]

See below for the calculation.

https://laborcenter.berkeley.edu/pdf/2013/MAGI_summary13.pdf

 

[pb4uski]

See what Dtail sent but principially tax return Adjusted Gross Income for most people with AGI and some adjustments for others.

 

[SecondCor521]

I retired early last year, and have been trying to determine how income is calculated when purchasing an ACA plan. I no longer get any W2 statements, but collect from an inherited IRA for the bulk of our expenses. DW is working, but maximizing retirement contributions to the full 26,000 max, which reduces her take home pay to around $1500/month. We are paying into her work plan around 1200/month for family health and dental.

Does retirement income taken from the inherited IRA (which I pay taxes on) count in the income calculation? Likewise is my wife's take home pay used versus gross income. It seems silly to ask, but depending on whether it's just W2 net income, there's a big difference.

It's modified AGI. You can find your AGI on your tax return - Form 1040 line 11. For ACA, the modified AGI takes that number and adds back some things, notably any tax-free Social Security you might be receiving.

Withdrawals from inherited IRAs would count. I believe those show up on line 4b of your Form 1040, which flows into line 11.

For your wife's income, it's whatever will show up in box 1 of her W-2. This probably excludes her retirement contributions and medical insurance premiums, but you should check to make sure. Her box 1 wages will end up on line 1 of your Form 1040, which also flows into line 11.

And it's not silly to ask at all. It's good planning and good to understand how things work.

 

[alreadyfired]

Piggybacking as I have a related question.

I'm on COBRA through October and then need to get on an ACA plan (e.g. Covered CA). I retired in 2020 and my 2020 W2 was bad and won't help me qualify for any subsidies. However, my 2021 MAGI is expected to be quite low. How do I show this without a new tax return? I'd rather not pay the full premium until I file my taxes in early 2022.

Thanks!

 

[SecondCor521]

Piggybacking as I have a related question.

I'm on COBRA through October and then need to get on an ACA plan (e.g. Covered CA). I retired in 2020 and my 2020 W2 was bad and won't help me qualify for any subsidies. However, my 2021 MAGI is expected to be quite low. How do I show this without a new tax return? I'd rather not pay the full premium until I file my taxes in early 2022.

Thanks!

When you lose COBRA, that's a qualifying event.

During your special enrollment period due to loss of COBRA, you'll tell them what your estimated 2021 income is. They'll then give you ACA subsidies. If they push back, you'll just have to write a letter or fill out a form explaining the circumstances, then they'll give you ACA subsidies.

If you're going to be on ACA in 2022, the previous paragraph also applies. Open enrollment for 2022 will probably be about 11/1/2021 through 12/15/2021 or so.

I don't know how it works in California if you can sign up for ACA coverage for November/December 2021 *and* 2022 in one step or not. You'd have to ask the Marketplace folks there, or maybe someone here knows for sure.

 

[jim584672]

See below for the calculation.

https://laborcenter.berkeley.edu/pdf/2013/MAGI_summary13.pdf

A newer version of the same document.

https://laborcenter.berkeley.edu/wp-content/uploads/2021/03/2021-03-MAGI-Summary.pdf

 

[alreadyfired]

@SecondCor521, thank you! What you provided is helpful and gives me a good place to ask questions to the marketplace providers, most likely Blue California. No idea if they are a good insurance company or not. That's my next research item.

 

[ER Eddie]

I looked into a similar question yesterday. What I gleaned was that IRA money (assuming traditional IRA, not Roth) goes into the MAGI that they use to calculate subsidies. It's essentially treated as ordinary income.

So, the MAGI will be close to the AGI listed on your last tax form (assuming income is stable), plus whatever the IRA money would add. To use myself as an example, my 2020 AGI was around 45K (that figure comes directly off my tax form). This year, I'll be rolling over 50K into a t-IRA, so my 2021 MAGI should be around 95K. I would use that figure and plug it into the subsidy calculators. It's not exact -- as you can see from the link in post 2, there are all sorts of complications in how the final MAGI is calculated (go figure) -- but it gives you a ballpark.






was looking at a similar question yesterday, wondering what my subsidy might be. I have a t-IRA that I'm converting to a Roth, so it might be a similar situation to yours.

From what I understand, traditional IRA withdrawals will count as taking another look at whether I wanted to be in Obamacare or not. I'm converting a t-IRA to a Roth, which means the money will be counted as income on my taxes.

 

[Dtail]

I looked into a similar question yesterday. What I gleaned was that IRA money (assuming traditional IRA, not Roth) goes into the MAGI that they use to calculate subsidies. It's essentially treated as ordinary income.

So, the MAGI will be close to the AGI listed on your last tax form (assuming income is stable), plus whatever the IRA money would add. To use myself as an example, my 2020 AGI was around 45K (that figure comes directly off my tax form). This year, I'll be rolling over 50K into a t-IRA, so my 2021 MAGI should be around 95K. I would use that figure and plug it into the subsidy calculators. It's not exact -- as you can see from the link in post 2, there are all sorts of complications in how the final MAGI is calculated (go figure) -- but it gives you a ballpark.

was looking at a similar question yesterday, wondering what my subsidy might be. I have a t-IRA that I'm converting to a Roth, so it might be a similar situation to yours.

From what I understand, traditional IRA withdrawals will count as taking another look at whether I wanted to be in Obamacare or not. I'm converting a t-IRA to a Roth, which means the money will be counted as income on my taxes.

Whether one takes the IRA as a withdrawal or converts it to a Roth, it is considered as MAGI for ACA subsidy calculation purposes.

 

[scrabbler1]

Another common addition to one's AGI to get the MAGI is any muni bond or muni bond fund income, shown on line 2a of Form 1040.

 

[steeleye]

Piggybacking as I have a related question.

I'm on COBRA through October and then need to get on an ACA plan (e.g. Covered CA). I retired in 2020 and my 2020 W2 was bad and won't help me qualify for any subsidies. However, my 2021 MAGI is expected to be quite low. How do I show this without a new tax return? I'd rather not pay the full premium until I file my taxes in early 2022.

Thanks!

I was in the exact same boat when I signed up for an ACA plan for 2020. I gave them our estimated AGI for 2021 and gave them a copy of our Social Security eligibility letters which comprised the bulk of our estimate. No questions, no problems and we qualified for the full premium subsidy which was key to our early retirement planning.

 

[fh2000]

Piggybacking as I have a related question.

I'm on COBRA through October and then need to get on an ACA plan (e.g. Covered CA). I retired in 2020 and my 2020 W2 was bad and won't help me qualify for any subsidies. However, my 2021 MAGI is expected to be quite low. How do I show this without a new tax return? I'd rather not pay the full premium until I file my taxes in early 2022.

Thanks!

Covered California helpline is here:
Customer service: 1 (800) 300-1506

Their agents are very helpful and patient. I would just give them a call and start with creating your account first. Then, ask them to help you pick a plan.
You can ask them any questions regarding how to estimate your next year income. They log all your questions, and resolutions, so next time you call, you do not need to repeat again.

They open at 8AM PST. That is normally when I call. Often times, I get a live agent answering my call right away.

 

[alreadyfired]

@fh2000 - thanks for directing me to just call them.

And you're right. Their agents are knowledgeable and quite patient. I learned a few things that I hadn't considered before.

One important one is having an income of < $19100. This makes a person eligible for Medi-Cal. If a person opts for an CoveredCA (ACA) plan then it would not be subsidized. Medi-Cal might also have different providers so your favorite doctor might not be there. Net result is I want a CoveredCA plan and I want a subsidy so I need to bump my capital gains up to cross the threshold.

The agent gave me a bunch more to think through as I have time before making a decision on the plan I want.

 

[RetiredAndLovingIt]

I think the number is a little less than you quoted, income needs to be above 138% of FPL which is $17775 according to this chart. My income is just over 18K and I have a silver plan and a subsidy.
https://www.coveredca.com/pdfs/FPL-chart.pdf

You can also do a small Roth Conversion to bump up your income level if needed.

 

[Major Tom]

I think the number is a little less than you quoted, income needs to be above 138% of FPL which is $17775 according to this chart. My income is just over 18K and I have a silver plan and a subsidy.
https://www.coveredca.com/pdfs/FPL-chart.pdf

Yes, that was the income level I have been assuming too. Thanks to some underperforming investments, my MAGI over the last few years has been just under the level required for Medi-Cal (California Medicaid), while the amount of money I had available to spend was significantly more (though still modest by many people's standards).

I am happy with the care I have received under Medi-Cal, though this seems to differ greatly from area to area. If the Medi-Cal options available to me were less satisfactory, I'd increase my MAGI slightly, in order to qualify for an ACA subsidy.