Learning to Live with Maggie (MAGI)

[SecondCor521]

To deliberately over-simplify a scenario, I believe this means I could generate $80K in LTCG and also take $20K out of my IRA for a MAGI of $100K and only owe a maximum of $8,500 on the PTC reimbursements.

Is this in the ballpark of a correct interpretation?

Best regards,
Chris

Your use of the word "reimbursements" there is a bit confusing to me.

If your MAGI is $100K, then you would be expected to contribute the first $8,500 in premiums on your ACA policy. If your policy premium is more costly than that, then your PTC would cover the difference.

If you underestimated your income and received a higher APTC, you'd still be required to pay it back with your tax return.

Aside from premiums, you'd still possibly have deductibles, copays, and co-insurance of course.

The 400% FPL cliff is gone for 2021 and 2022, but returns in 2023 unless the law is changed further. So in 2023, if your MAGI is above 400% FPL and if the law remains the same, you'd have to repay all of your APTC.

 

[scrabbler1]

Your use of the word "reimbursements" there is a bit confusing to me.

If your MAGI is $100K, then you would be expected to contribute the first $8,500 in premiums on your ACA policy. If your policy premium is more costly than that, then your PTC would cover the difference.

If you underestimated your income and received a higher APTC, you'd still be required to pay it back with your tax return.

Aside from premiums, you'd still possibly have deductibles, copays, and co-insurance of course.

The 400% FPL cliff is gone for 2021 and 2022, but returns in 2023 unless the law is changed further. So in 2023, if your MAGI is above 400% FPL and if the law remains the same, you'd have to repay all of your APTC.

In my tax form spreadsheet, I include the calculations shown in Form 8962, the one which determines the ACA subsidy. In that form, the SLCSP (Second Lowest Cost Silver Plan) plays a big role in determining my ACA subsidy. Unfortunately, despite my best efforts over the years, I have never really been able to figure out this number until I receive Form 1095-A in late January. Often, it is not close to even my best estimates of it.

It is not totally clear how the SLCSP will fit into whatever the revised Form 8962 will be with the (temporary) law change for 2021 and 2022. I suppose there will be a draft version in a few months but it is a minor PITA to hunt around in the IRS website for it.

 

[BubbaChris]

Your use of the word "reimbursements" there is a bit confusing to me.

If your MAGI is $100K, then you would be expected to contribute the first $8,500 in premiums on your ACA policy. If your policy premium is more costly than that, then your PTC would cover the difference.

If you underestimated your income and received a higher APTC, you'd still be required to pay it back with your tax return.

Aside from premiums, you'd still possibly have deductibles, copays, and co-insurance of course.

The 400% FPL cliff is gone for 2021 and 2022, but returns in 2023 unless the law is changed further. So in 2023, if your MAGI is above 400% FPL and if the law remains the same, you'd have to repay all of your APTC.

Thanks for forgiving my use of reimbursements. 2020 was our first year in the ACA and I keep trying to learn both the process and terminology. For 2021 the PTCs we're applying to our premium will total over $24K.

So if my real risk for out-of-pocket premium payment this year and next is 8.5% of MAGI, then it is tempting to realize LTCGs while the rest of my federal income tax has the potential to be zero. It would give me more flexibility as I plan our withdrawals for the next handful of years.

I know in my OP I said I'm not into jumping through hoops. I don't stop to pick up random dimes anymore, but this feels more like there's a $20 bill sitting there.

Best regards,
Chris

 

[SecondCor521]

In my tax form spreadsheet, I include the calculations shown in Form 8962, the one which determines the ACA subsidy. In that form, the SLCSP (Second Lowest Cost Silver Plan) plays a big role in determining my ACA subsidy. Unfortunately, despite my best efforts over the years, I have never really been able to figure out this number until I receive Form 1095-A in late January. Often, it is not close to even my best estimates of it.

It is not totally clear how the SLCSP will fit into whatever the revised Form 8962 will be with the (temporary) law change for 2021 and 2022. I suppose there will be a draft version in a few months but it is a minor PITA to hunt around in the IRS website for it.

What I do is when I go shopping for my ACA plan during open enrollment in the late fall (Nov/Dec), I take all the plans available in my zip code for my family size and ages and tobacco status. I then filter for only Silver plans. I then sort by premium low to high. I then look at the unsubsidized premium for the second plan on the list. That is the number that generally shows up on my 1095A in the SLCSP.

In theory, the number could change if the prices of the plans changed, or if an insurer entered or left the market in my state, or if my family composition or tobacco status changed, but in practice so far, the number has always been the same all 12 months and I think it matched the plan amount as described in the previous paragraph.

 

[SecondCor521]

Thanks for forgiving my use of reimbursements. 2020 was our first year in the ACA and I keep trying to learn both the process and terminology. For 2021 the PTCs we're applying to our premium will total over $24K.

So if my real risk for out-of-pocket premium payment this year and next is 8.5% of MAGI, then it is tempting to realize LTCGs while the rest of my federal income tax has the potential to be zero. It would give me more flexibility as I plan our withdrawals for the next handful of years.

I know in my OP I said I'm not into jumping through hoops. I don't stop to pick up random dimes anymore, but this feels more like there's a $20 bill sitting there.

Best regards,
Chris

I think you have it right. To be safe, if you're unsure and can wait on realizing those LTCGs, you could wait until Thanksgiving or so, buy a tax program, and put in all your numbers and make sure it works the way you think it does.

One thing to make sure of is your understanding of how ACA MAGI is calculated. It's AGI on your tax form plus a few other things - tax exempt interest and non-taxed SS are the biggies, but it also includes the AGI of any of your tax dependents who were required to file a tax return as well as excluded foreign interest.

 

[daylatedollarshort]

One thing to make sure of is your understanding of how ACA MAGI is calculated. It's AGI on your tax form plus a few other things - tax exempt interest and non-taxed SS are the biggies, but it also includes the AGI of any of your tax dependents who were required to file a tax return as well as excluded foreign interest.

HSA contributions are also exempt from the ACA MAGI calculations, making it another another way to stretch the cliff limits.

Good point about the dependent income. We had one adult kid who always had a eclectic mix of jobs and school during the college years, and we never knew how much they would make in a given semester, so we took them off our taxes and put them on their own plan.

 

[SecondCor521]

HSA contributions are also exempt from the ACA MAGI calculations, making it another another way to stretch the cliff limits.

Good point about the dependent income. We had one adult kid who always had a eclectic mix of jobs and school during the college years, and we never knew how much they would make in a given semester, so we took them off our taxes and put them on their own plan.

To be a bit pedantic, HSA contributions are one of the several deductions which are subtracted from total income to get to AGI.

But your point about HSA helping with the cliff limits (and/or doing more Roth conversions) is good to point out.

 

[daylatedollarshort]

SecondCor521- Sorry, yes that was incorrect terminology on my part.

Complete list of ACA MAGI calculation factors here - https://laborcenter.berkeley.edu/pdf/2019/magi.pdf

 

[Winemaker]

Not following this at all, especially for 2021-22. Everyone can get ACA and get subsidies subject to the 8.5% scale, and if your income is so high you pay everything OOP then there's no issue IMO. Was this a joke?

No joke. I can't give anybody any advice on this subject, no experience. I've looked at this 1000 times over and sideways, so I've learned to live with our MAGI. I'm grateful things turned great for us at the present time, I always like to bend the rules legally so they can help us out, but they don't. No subsidies here.

 

[SecondCor521]

SecondCor521- Sorry, yes that was incorrect terminology on my part.

Complete list of ACA MAGI calculation factors here - https://laborcenter.berkeley.edu/pdf/2019/magi.pdf

No worries.

I'm about to start telling the neighbor kids to get off my lawn.

 

[scrabbler1]

What I do is when I go shopping for my ACA plan during open enrollment in the late fall (Nov/Dec), I take all the plans available in my zip code for my family size and ages and tobacco status. I then filter for only Silver plans. I then sort by premium low to high. I then look at the unsubsidized premium for the second plan on the list. That is the number that generally shows up on my 1095A in the SLCSP.

In theory, the number could change if the prices of the plans changed, or if an insurer entered or left the market in my state, or if my family composition or tobacco status changed, but in practice so far, the number has always been the same all 12 months and I think it matched the plan amount as described in the previous paragraph.

I remember doing this the first few years and I was getting a number which was close to the SLCSP shown in the 1095-A form. It was off because my plan (and all plans in my state, by law) included coverage for something beyond the items required in a plan which adhered to ACA standards. I had no way of knowing how much of the premium I paid went toward the non-mandated item.

I would have been okay with that small difference, as long as it was close to the final SLCSP. But after a few years, the SLCSP I determined using your/mine method and what I saw in the 19095-A form were so much different it made our method useless, so I didn't bother trying to figure it out myself any more.