"Proof" of income for ACA healthcare subsidies

[RockyMNHiker]

I am retired and have been living off 72t withdrawls and NQ savings for the last 4 years. I have been on my wife's megacorp health insurance since retirement, but she is retiring July 1st this year and we need health insurance. Cobra is $$$$$$. Healthcare.gov tells us to go to our state's marketplace thru MNSURE.gov. I think that her retirement (and thus being booted from her company's group health insurance plan) is a qualifying event for us enroll in Obamacare before open enrollment in November.

My question to all experts here is this: When the MNSURE online application asks for annual income, are they asking for the next 12 months? Her paycheck will end July 1, so income ends. How does the IRS accommodate "true up" income in this first year so that we can still qualify for full premium credits?

Confused in Minnesota.

 

[aaronc879]

It's asking for income THIS year. If you estimate low and get a big subsidy then you will have to pay back some of it at tax time.

 

[jim584672]

I am retired and have been living off 72t withdrawls and NQ savings for the last 4 years. I have been on my wife's megacorp health insurance since retirement, but she is retiring July 1st this year and we need health insurance. Cobra is $$$$$$. Healthcare.gov tells us to go to our state's marketplace thru MNSURE.gov. I think that her retirement (and thus being booted from her company's group health insurance plan) is a qualifying event for us enroll in Obamacare before open enrollment in November.

My question to all experts here is this: When the MNSURE online application asks for annual income, are they asking for the next 12 months? Her paycheck will end July 1, so income ends. How does the IRS accommodate "true up" income in this first year so that we can still qualify for full premium credits?

Confused in Minnesota.

ACA subsidies go by calendar year income, so that is what you should be shooting for. Medicaid goes by current monthly income, previous months don't count.

 

[ShokWaveRider]

It's asking for income THIS year. If you estimate low and get a big subsidy then you will have to pay back some of it at tax time.

This is correct. DW has underestimated for many years to get the best subsidy, then pay back what we owe at tax time. You do not have to pay anything back other than premium differences. You can still enjoy the low copays and low (or Zero) deductibles and Lower Max Out Of Pocket expenses.

 

[ownyourfuture]

I live in Minnesota as well. When I retired in June 2015, I decided to go with cobra because of all the uncertainty regarding the affordable care act at the time.

It was expensive, $600 a month for a single plan, but it was a ‘real’ health insurance plan. Very low deductible & co-pays. The plan I'm on now through UCare is ‘only’ $205 a month, but the deductible is $7000 and there's no coverage for dental/vision even if the deductible has been met.

Something else you should look into (if you haven't already) is a health savings account. The only requirement is that you have a high deductible ACA plan.

If you qualify, it's a great deal.

 

[Dtail]

This is correct. DW has underestimated for many years to get the best subsidy, then pay back what we owe at tax time. You do not have to pay anything back other than premium differences. You can still enjoy the low copays and low (or Zero) deductibles and Lower Max Out Of Pocket expenses.

Bolded by me.
This point is missed by many folks using the ACA plans. On the flip side, some would consider this low ball MAGI estimate to be some form of artificially falsifying income (if income is relatively known upfront).

 

[jim584672]

Cost sharing reductions are limited to Silver plans under 250% FPL. There is no advantage to a low estimate for non Silver or above 250% FPL.

 

[Dtail]

Cost sharing reductions are limited to Silver plans under 250% FPL. There is no advantage to a low estimate for non Silver or above 250% FPL.

Yes should have added that point, but my point remains.

 

[Texas Proud]

Bolded by me.
This point is missed by many folks using the ACA plans. On the flip side, some would consider this low ball MAGI estimate to be some form of artificially falsifying income (if income is relatively known upfront).

I agree.... if you have a good idea of what your will earn you should put that down...



Surprisingly the last couple of years I have over estimated my income because they wanted me to put my daughter on CHIPS which I cannot get... I am not way out of line.... if there is a big mutual fund distribution I would be hitting what I put down.

 

[Trailwalker]

I live in Minnesota as well. When I retired in June 2015, I decided to go with cobra because of all the uncertainty regarding the affordable care act at the time.
It was expensive, $600 a month for a single plan, but it was a ‘real’ health insurance plan. Very low deductible & co-pays. The plan I'm on now through UCare is ‘only’ $205 a month, but the deductible is $7000 and there's no coverage for dental/vision even if the deductible has been met.

$600/month for Cobra might seem like a lot but it could be worse. We were paying $2500/month for my wife and I at the end of the 18 months. We had no deductible or co-pay, but I didn't have any medical expenses during those 18 months, so I was having a serious case of second thoughts on Cobra.

In Wisconsin, I was not asked for proof of income. There was a question on the application about the income I estimated-- to the effect of that is much lower than previous years, but then there was a multiple choice explanation in which I selected end of employment/retirement as the reason for the lower income. Very nice subsidy on a Gold HSA.

 

[SecondCor521]

I am retired and have been living off 72t withdrawls and NQ savings for the last 4 years. I have been on my wife's megacorp health insurance since retirement, but she is retiring July 1st this year and we need health insurance. Cobra is $$$$$$. Healthcare.gov tells us to go to our state's marketplace thru MNSURE.gov. I think that her retirement (and thus being booted from her company's group health insurance plan) is a qualifying event for us enroll in Obamacare before open enrollment in November.

My question to all experts here is this: When the MNSURE online application asks for annual income, are they asking for the next 12 months? Her paycheck will end July 1, so income ends. How does the IRS accommodate "true up" income in this first year so that we can still qualify for full premium credits?

Confused in Minnesota.

Yes, losing employer coverage and skipping COBRA entitles you and her to a special enrollment period. This means you can sign up for ACA starting either July 1st or August 1st (depending on if her employer coverage is valid through the end of June or the end of July, respectively).

They're asking you to estimate your 2022 AGI.

You may qualify for APTC (aka subsidies) based on your estimated income. When you go to file your 2022 tax return next spring, you'll get a 1095-A from your ACA insurance company and use that information to complete Form 8962 with your tax return. Your actual subsidy will be reconciled with your APTC (aka subsidies) on that Form 8962.

 

[SecondCor521]

This is correct. DW has underestimated for many years to get the best subsidy, then pay back what we owe at tax time. You do not have to pay anything back other than premium differences. You can still enjoy the low copays and low (or Zero) deductibles and Lower Max Out Of Pocket expenses.

Be aware that intentionally underestimating income may come with tax consequences in certain cases. See Pub 974 and search for "reckless disregard" to see if any of those apply to your DW.

 

[ownyourfuture]

$600/month for Cobra might seem like a lot but it could be worse. We were paying $2500/month for my wife and I at the end of the 18 months.

30k per year for HC insurance...HOLY !@#$

 

[jimbee]

30k per year for HC insurance...HOLY !@#$

That's the cost for my company's retiree insurance. And that is why I signed up for ACA insurance.

 

[big-papa]

This is correct. DW has underestimated for many years to get the best subsidy, then pay back what we owe at tax time. You do not have to pay anything back other than premium differences. You can still enjoy the low copays and low (or Zero) deductibles and Lower Max Out Of Pocket expenses.

My only adventure into ACA was similar. I had been out of work for a few months and decided to switch from Cobra to an ACA plan when a new year was about to roll around. So I had to completely guess what my next year's income would be because I really didn't know yet when/if I'd even be working again as it was taking longer than it ever took before to find my next gig in my field.

I went back to work mid year, and cancelled my ACA plan. Come tax time, I had to pay back the subsidies, of course. Worked out just fine and in retrospect, it ultimately helped with cash flow quite a bit during my down time.

I'm retiring in the next few weeks and will do Cobra till end of the year. Then back to ACA starting in 2023 till Medicare. The difference is I'll pretty much know what my MAGI is going to be up front since I have full control over that. Gotta mix that all in with Roth conversions, etc., but at least I'll know!

Cheers.

 

[jim584672]

2023 and the 400% FPL cliff comes back, just a heads up.

 

[Looking4Ward]

2023 and the 400% FPL cliff comes back, just a heads up.

I've been on ACA for six years now, and I'm pretty confident what my dividends and self-induced capital gains will be each year, which is low enough for me to qualify for the highest subsidy and a Silver plan with little to no deductible and very low OOP max.

A couple of years I ran into an issue with exceeding that estimated MAGI but was still below 400% FPL, so I only had to pay the penalty.

But last year, an extremely large and completely unanticipated CG Distribution was made by one of my largest after-tax holdings, which pushed me to 402% of FPL and I had to send a check for the difference to equal 8.5% of my MAGI.

As Jim posted, the cliff returns and any MAGI over 400% will require every dollar of subsidy be paid back. I'm trying very hard this year to determine if I should even enroll in ACA again as it's possible that one mutual fund could make another large distribution in December.

 

[RockyMNHiker]

Thank you all for the help!

We will make maximum contributions to the HSA accounts to fully fund the HSA while reducing this years' MAGI.
We will enroll in a High Deductible HSA-approved plan in the Market.
We will probably sell some NQ MF at a loss to eek under the 69.9K ACA limit.

We will enjoy FIRE together.

Edit: Looks like MNSURE plans start at $394/mo for Bronze, with $634 premium credit applied.

 

[SecondCor521]

We will probably sell some NQ MF at a loss to eek under the 69.9K ACA limit.

Make sure to double check your numbers if you're close to the 400% cliff.

Assuming 2 people in Minnesota for 2022, 400% of FPL looks like it is $69,680 ($17,420 x 4 per https://thefinancebuff.com/federal-poverty-levels-for-obamacare.html). That is a bit less than what you wrote.

For 2022 though, the 400% FPL cliff is suspended due to the ARP Act. You'll have to repay anything above 8.5% of AGI, but you'll still likely get a subsidy and you won't have to pay everything back.

For 2023, when the cliff returns, the same number would be $73,240 ($18,310 x 4 per same URL above).

One tax planning idea I'm using this year that you might consider: I'm going to get my AGI to a bit above my target, then use an HSA contribution next spring to get it back down to $1 below my target. This strategy requires confirming with your HSA custodian that they'll accept and apply a contribution to the previous tax year (Fidelity does, federal law allows it, I suspect most custodians do), and requires not maxxing out the HSA contribution already, and requires being close enough over the AGI target that an HSA contribution can get it back under.

 

[ownyourfuture]

2023 and the 400% FPL cliff comes back, just a heads up.

I almost forgot about that. Thanks for the reminder.