Inflating AGI to avoid paying back ACA Premium Tax Credit

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BrianJM
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Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by BrianJM » Tue Oct 16, 2018 9:04 am

Good morning!

My family is in a precarious situation this year with the ACA. Last year, my largest concern was reducing AGI to ensure we would receive an ACA subsidy Premium Tax Credit. This year, I need to do everything possible to keep AGI as high as possible (aside for earning more income).

I’m self employed and income is variable by year. One of my sources of income was completely removed this year due to a shift in market, and that effectively cut my income by half.

My expectation this year was to be over the ACA minimum income to receive subsidies a Premium Tax Credit (with my entire family covered). At this point, it is becoming more of a reality that my children may qualify for CHIP. The main problem is, due to the nature of my business, I will not truly know that until the end of the year. The addition of a new child this year also increased our income requirement to receive an ACA subsidies Premium Tax Credit without taking advantage of CHIP, which I was ignorantly unaware of until I submitted a life change at Healthcare.gov. I expect that we will be on the fence for CHIP qualification, and that I may be disqualified from a full ACA subsidy Premium Tax Credit by a few thousand dollars (AGI).

If my income qualifies us for CHIP, we will have to pay back a full $15k in ACA subsidies Premium Tax Credit. If we enroll in CHIP and do not qualify at the end of the year, my assumption is that there will also be repercussions; I may be wrong but I am having a hard time getting a straight answer on that topic from Healthcare.gov and the state.

Now that I have explained my background a little, this leads to my main question: Are 1040 deductions that directly impact AGI mandatory or elective? Are there deductions I can electively not take in order in increase my AGI? For example, can I elect to not take a deduction for self-employment taxes, self-employed health insurance, etc.?

I did make an IRA contribution which I intend to reclassify as a Roth IRA contribution. I also intend to cash out our brokerage account to add taxable interest.

Any advice would be greatly appreciated. Thank you, Bogleheads!
Last edited by BrianJM on Tue Oct 16, 2018 2:49 pm, edited 1 time in total.

Dottie57
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Re: Inflating AGI to avoid paying back ACA subsidies

Post by Dottie57 » Tue Oct 16, 2018 9:25 am

How about a roth conversion?

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Watty
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Re: Inflating AGI to avoid paying back ACA subsidies

Post by Watty » Tue Oct 16, 2018 9:31 am

Dottie57 wrote:
Tue Oct 16, 2018 9:25 am
How about a roth conversion?
+1

If you have any capital gains in taxable accounts then taking them might be an option too.

Cashing things like savings bonds might also increase your taxable income.

With more than two months left in the year getting a part time job might give you enough additional income to get above them limit. Many seasonal employers are looking for people now and unemployment is real low in most areas so that might be easy to find.

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indexfundfan
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Re: Inflating AGI to avoid paying back ACA subsidies

Post by indexfundfan » Tue Oct 16, 2018 9:32 am

Yes, if you sell taxable holdings with gains, it will add on to the MAGI used for ACA. You can buy back the holding immediately if you like (no wash sale rules for gains).

Also, already mentioned, convert traditional to Roth IRA.
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indexfundfan
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Re: Inflating AGI to avoid paying back ACA subsidies

Post by indexfundfan » Tue Oct 16, 2018 9:36 am

By the way, harvesting tax gains or doing Roth conversions is better than not using the deductions that you are entitled to (though I don't know the answer to whether the deductions are elective or not). If you don't use the deductions, you lose them whereas harvesting tax gains or doing Roth conversions will reduce your future tax burden.
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michaeljc70
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Re: Inflating AGI to avoid paying back ACA subsidies

Post by michaeljc70 » Tue Oct 16, 2018 9:37 am

Don't you have deductions on Schedule C you can leave off? As others indicated, a Roth conversion would be great as you will actually get a future benefit from it.

bhsince87
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Re: Inflating AGI to avoid paying back ACA subsidies

Post by bhsince87 » Tue Oct 16, 2018 9:48 am

For income tax purposes, the deductions are optional. There are a few we've never taken because of the record keeping headaches.

I would assume that would apply to AGI tests as well. But it probably comes up so infrequently that I wouldn't be surprised if there are no clear rules on it.

I kinda doubt they would go back and check your schedule C in any case.
Retirement: When you reach a point where you have enough. Or when you've had enough.

BrianJM
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Re: Inflating AGI to avoid paying back ACA subsidies

Post by BrianJM » Tue Oct 16, 2018 9:59 am

Watty wrote:
Tue Oct 16, 2018 9:31 am
Dottie57 wrote:
Tue Oct 16, 2018 9:25 am
How about a roth conversion?
+1

If you have any capital gains in taxable accounts then taking them might be an option too.

Cashing things like savings bonds might also increase your taxable income.

With more than two months left in the year getting a part time job might give you enough additional income to get above them limit. Many seasonal employers are looking for people now and unemployment is real low in most areas so that might be easy to find.
indexfundfan wrote:
Tue Oct 16, 2018 9:32 am
Yes, if you sell taxable holdings with gains, it will add on to the MAGI used for ACA. You can buy back the holding immediately if you like (no wash sale rules for gains).

Also, already mentioned, convert traditional to Roth IRA.
indexfundfan wrote:
Tue Oct 16, 2018 9:36 am
By the way, harvesting tax gains or doing Roth conversions is better than not using the deductions that you are entitled to (though I don't know the answer to whether the deductions are elective or not). If you don't use the deductions, you lose them whereas harvesting tax gains or doing Roth conversions will reduce your future tax burden.
michaeljc70 wrote:
Tue Oct 16, 2018 9:37 am
Don't you have deductions on Schedule C you can leave off? As others indicated, a Roth conversion would be great as you will actually get a future benefit from it.
Regarding a part-time job - with young family, new baby, and current time invested in growing the business, this really isn't an option (or probably the best use of my time considering wages for part-time work).

michaeljc70: Schedule C deductions from last year are nominal. I will look into this - good suggestion!

Thank you Watty, Dottie57, and indexfundfan. I did not consider a Roth conversion or the tax benefits of doing so.

Is the conversion deadline Dec 31st?

Does the AGI increase correspond directly with the conversion amount? If I convert $100k, does AGI increase by $100k?

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Re: Inflating AGI to avoid paying back ACA subsidies

Post by iamblessed » Tue Oct 16, 2018 10:05 am

delete
Last edited by iamblessed on Wed Oct 31, 2018 9:42 pm, edited 3 times in total.

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Re: Inflating AGI to avoid paying back ACA subsidies

Post by indexfundfan » Tue Oct 16, 2018 10:21 am

BrianJM wrote:
Tue Oct 16, 2018 9:59 am
Is the conversion deadline Dec 31st?

Does the AGI increase correspond directly with the conversion amount? If I convert $100k, does AGI increase by $100k?
Conversion deadline is 12/31.

AGI is increased by the amount you converted unless you have made non-deductible IRA contributions in previous years. You will know you have made non-deductible contributions if you had filed the 8606 form.
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BrianJM
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Re: Inflating AGI to avoid paying back ACA subsidies

Post by BrianJM » Tue Oct 16, 2018 10:26 am

indexfundfan wrote:
Tue Oct 16, 2018 10:21 am
Conversion deadline is 12/31.

AGI is increased by the amount you converted unless you have made non-deductible IRA contributions in previous years. You will know you have made non-deductible contributions if you had filed the 8606 form.
Perfect. I have never completed a 8606.

It looks like the Roth Conversion is going to be the perfect solution for me. I'll just have to plan carefully in December.

Thank you so much!

Katietsu
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Re: Inflating AGI to avoid paying back ACA subsidies

Post by Katietsu » Tue Oct 16, 2018 10:40 am

It sounds like you found a solution with the Roth conversion. Just make sure you give enough time for completion. I have had them completed in as little as two days but as long as almost a month. This is the best option that I see.

However, if you provided an honest estimate of your expected earnings, you will not need to pay back subsidies that were already provided on your behalf if it turns out your income was too low. Check out the IRS instructions for Form 8962. Those may help you understand some of the rules though it does not address all circumstances.

As far as CHIP or Medicaid, you do have to pay back subsidies if you are covered by one of these government plans and an ACA policy at the same time. But only from the point you have been confirmed eligible and notified. So all you need to do is cancel/modify the ACA plan going forward. An overlap of coverage because of retroactive coverage in one of those government plans does not affect your ACA subsidy.

BrianJM
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Re: Inflating AGI to avoid paying back ACA subsidies

Post by BrianJM » Tue Oct 16, 2018 11:30 am

Katietsu wrote:
Tue Oct 16, 2018 10:40 am
However, if you provided an honest estimate of your expected earnings, you will not need to pay back subsidies that were already provided on your behalf if it turns out your income was too low. Check out the IRS instructions for Form 8962. Those may help you understand some of the rules though it does not address all circumstances.
Serious question - what defines an "honest" estimate? This seems rather subjective.

I don't trust to government to evaluate my personal character (i.e., honesty). Form 8962 frequently uses the term "accurate" but never "honest". I prefer to increase my AGI where possible, rather than assume I fully understand the intricacies of the ACA (which I do not) and financially regret my decision.

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Re: Inflating AGI to avoid paying back ACA subsidies

Post by Katietsu » Tue Oct 16, 2018 11:44 am

BrianJM wrote:
Tue Oct 16, 2018 11:30 am
Katietsu wrote:
Tue Oct 16, 2018 10:40 am
However, if you provided an honest estimate of your expected earnings, you will not need to pay back subsidies that were already provided on your behalf if it turns out your income was too low. Check out the IRS instructions for Form 8962. Those may help you understand some of the rules though it does not address all circumstances.
Serious question - what defines an "honest" estimate? This seems rather subjective.

I don't trust to government to evaluate my personal character (i.e., honesty). Form 8962 frequently uses the term "accurate" but never "honest". I prefer to increase my AGI where possible, rather than assume I fully understand the intricacies of the ACA (which I do not) and financially regret my decision.
I agree that inflating your AGI is the preferable choice. I actually do not remember the word that is used, it is not “honest” and is definitely not “accurate”. I think they might use “good faith”. What the regulation is trying to prevent is someone who clearly has no expectations of an income over 100% FPL but who prefers a subsidized ACA plan compared to medicaid from intentionally misleading the marketplace about expected income. I am not an expert but in my limited experience, people in your situation for one year would not be expected to pay back subsidies and would not even be questioned about it. If it continued to happen repeatedly, that is when I would be concerned.

BrianJM
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Re: Inflating AGI to avoid paying back ACA subsidies

Post by BrianJM » Tue Oct 16, 2018 11:52 am

Katietsu wrote:
Tue Oct 16, 2018 11:44 am
BrianJM wrote:
Tue Oct 16, 2018 11:30 am
Katietsu wrote:
Tue Oct 16, 2018 10:40 am
However, if you provided an honest estimate of your expected earnings, you will not need to pay back subsidies that were already provided on your behalf if it turns out your income was too low. Check out the IRS instructions for Form 8962. Those may help you understand some of the rules though it does not address all circumstances.
Serious question - what defines an "honest" estimate? This seems rather subjective.

I don't trust to government to evaluate my personal character (i.e., honesty). Form 8962 frequently uses the term "accurate" but never "honest". I prefer to increase my AGI where possible, rather than assume I fully understand the intricacies of the ACA (which I do not) and financially regret my decision.
I agree that inflating your AGI is the preferable choice. I actually do not remember the word that is used, it is not “honest” and is definitely not “accurate”. I think they might use “good faith”. What the regulation is trying to prevent is someone who clearly has no expectations of an income over 100% FPL but who prefers a subsidized ACA plan compared to medicaid from intentionally misleading the marketplace about expected income. I am not an expert but in my limited experience, people in your situation for one year would not be expected to pay back subsidies and would not even be questioned about it. If it continued to happen repeatedly, that is when I would be concerned.
Thanks for the insight! I am going to look into this further as well.

J295
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Re: Inflating AGI to avoid paying back ACA subsidies

Post by J295 » Tue Oct 16, 2018 1:13 pm

OP. Is your primary concern with premium tax credits rather than subsidies? Many use these terms interchangeably, including one of the responders, and that can create confusion. The good faith issue arises in the context of subsidies, not in the context of premium tax credits.

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Re: Inflating AGI to avoid paying back ACA subsidies

Post by celia » Tue Oct 16, 2018 2:01 pm

BrianJM wrote:
Tue Oct 16, 2018 9:04 am
I did make an IRA contribution which I intend to reclassify as a Roth IRA contribution. I also intend to cash out our brokerage account to add taxable interest.
By "reclassify", I assume you mean "recharacterize". If you do that, it will be considered the same as if the contribution had originally been made to the Roth instead and any associated growth in the tIRA would be moved to the Roth tax-free, as if the growth had happened in the Roth. (The custodian is responsible for calculating the growth.) If you convert the amount instead (as part of your regular Roth conversion), the growth will be taxed and will increase your AGI.

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Re: Inflating AGI to avoid paying back ACA subsidies

Post by BrianJM » Tue Oct 16, 2018 2:52 pm

J295 wrote:
Tue Oct 16, 2018 1:13 pm
OP. Is your primary concern with premium tax credits rather than subsidies? Many use these terms interchangeably, including one of the responders, and that can create confusion. The good faith issue arises in the context of subsidies, not in the context of premium tax credits.
The primary concern is the Premium Tax Credit so, yes, I also used the terms interchangeably. I have adjusted the original post to reflect the correct terminology.

Thank you for clarifying the good faith issue, and that AGI will indeed be a major issue for me if it is a little under the threshold.

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Re: Inflating AGI to avoid paying back ACA subsidies

Post by BrianJM » Tue Oct 16, 2018 2:54 pm

celia wrote:
Tue Oct 16, 2018 2:01 pm
BrianJM wrote:
Tue Oct 16, 2018 9:04 am
I did make an IRA contribution which I intend to reclassify as a Roth IRA contribution. I also intend to cash out our brokerage account to add taxable interest.
By "reclassify", I assume you mean "recharacterize". If you do that, it will be considered the same as if the contribution had originally been made to the Roth instead and any associated growth in the tIRA would be moved to the Roth tax-free, as if the growth had happened in the Roth. (The custodian is responsible for calculating the growth.) If you convert the amount instead (as part of your regular Roth conversion), the growth will be taxed and will increase your AGI.
Yes, recharacterize. The intent here is to not take the 1040 deduction for 2018 Traditional IRA contributions.

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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by patrick » Tue Oct 16, 2018 5:34 pm

Beyond the ACA income threshold, converting to Roth when you are at a temporarily lower income also takes advantage of the lower tax rate.

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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by Phineas J. Whoopee » Tue Oct 16, 2018 5:39 pm

If I may:

Often when the issue comes up it's in a non-Medicaid expansion state. The drafters of the ACA didn't contemplate the Supreme Court throwing out the threat to the states. It's left an unintended situation in which a person's income can be too low to qualify for Medicaid.

The number in question is Modified Adjusted Gross Income, which is calculated differently for different programs. Here's a link to the ACA version.

There are Premium Tax Credits, which OP mentioned, and also Cost Sharing Reductions. The word subsidy is ambiguous although in common use. The PTC is available to those with an MAGI less than 400% of the previous year's federal poverty guideline. The income estimate applies to this aspect. At tax time any PTCs received in advance are reconciled with what they really should be given realized income, and any that weren't paid to you are sent, and any you shouldn't have received under the law you pay back. There is no penalty for the latter, as long as you comply with other requirements about timely filing, withholding, and payment.

The CSRs reduce copays and out-of-pocked maximums, and are available only on silver-level plans, for those below 250% and too high for Medicaid to apply, and are not reconciled.

As I mentioned, a legal anomaly means in some states there exist people who with 101% are eligible, but at 99% would not be.

I hope that's helpful.

PJW

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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by JBTX » Tue Oct 16, 2018 7:02 pm

Just a thought, not sure how workable it is.

Gambling winnings are taxable. Obviously when you gamble sometimes you win and sometimes you lose. Gambling winnings are taxable and raise agi and losses are only deductible to the extent that offset winnings and you itemize them. Most people can't itemize now so losses are effectively not deductible and even if you had enough deductions they dont lower agi as they are itemized deduction .

Go play a game like craps. Play the 50/50 bets. Every time you win cash out and log it. Don't log your losses, or log them separately since the are not deductible.

I realize it's kind of a cockeyed scheme but it might actually work. The downside is of you get unlucky and lose a lot more than you win.

This article would actually work in reverse for you.

https://www.ajccpas.com/blog/did-you-kn ... osts/41890

michaeljc70
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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by michaeljc70 » Tue Oct 16, 2018 7:14 pm

I'm not sure what type of business you have or how much more income you need, so this may not work. But maybe you can get customers/clients to pay you early bringing 2019 income into 2018. You could offer them a discount to encourage them.

JBTX
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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by JBTX » Tue Oct 16, 2018 7:19 pm

Or buy calls and puts at the same time. Cash out on winners before year end and losses after year end.

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Re: Inflating AGI to avoid paying back ACA subsidies

Post by boglesmind » Tue Oct 16, 2018 7:45 pm

BrianJM wrote:
Tue Oct 16, 2018 10:26 am
indexfundfan wrote:
Tue Oct 16, 2018 10:21 am
Conversion deadline is 12/31.

AGI is increased by the amount you converted unless you have made non-deductible IRA contributions in previous years. You will know you have made non-deductible contributions if you had filed the 8606 form.
Perfect. I have never completed a 8606.

It looks like the Roth Conversion is going to be the perfect solution for me. I'll just have to plan carefully in December.

Thank you so much!
A common advice on this forum is to not wait until the last days of December to do the Roth conversion in order to avoid any issues / brokerage glitches that *may* arise or at least have enough time to catch and fix them.

Boglesmind

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celia
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Re: Inflating AGI to avoid paying back ACA subsidies

Post by celia » Tue Oct 16, 2018 7:51 pm

BrianJM wrote:
Tue Oct 16, 2018 2:54 pm
celia wrote:
Tue Oct 16, 2018 2:01 pm
BrianJM wrote:
Tue Oct 16, 2018 9:04 am
I did make an IRA contribution which I intend to reclassify as a Roth IRA contribution. I also intend to cash out our brokerage account to add taxable interest.
By "reclassify", I assume you mean "recharacterize". If you do that, it will be considered the same as if the contribution had originally been made to the Roth instead and any associated growth in the tIRA would be moved to the Roth tax-free, as if the growth had happened in the Roth. (The custodian is responsible for calculating the growth.) If you convert the amount instead (as part of your regular Roth conversion), the growth will be taxed and will increase your AGI.
Yes, recharacterize. The intent here is to not take the 1040 deduction for 2018 Traditional IRA contributions.
It doesn't matter if you deduct the contribution or not. If you do deduct it and recharacterize or convert, it just gets added back into your income and you will pay the same in taxes as if you didn't deduct it. Where the difference to you comes in is if the GROWTH is taxed or not. (You WANT it to be taxed in a Roth conversion, so it increases your income.)

BTW, If you want to hit your target AGI to the dollar, you can recharacterize an exact dollar amount early next year. It will be as if that amount had originally been contributed to the Roth.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by 2015 » Wed Oct 17, 2018 9:20 am

Phineas J. Whoopee wrote:
Tue Oct 16, 2018 5:39 pm
If I may:

Often when the issue comes up it's in a non-Medicaid expansion state. The drafters of the ACA didn't contemplate the Supreme Court throwing out the threat to the states. It's left an unintended situation in which a person's income can be too low to qualify for Medicaid.

The number in question is Modified Adjusted Gross Income, which is calculated differently for different programs. Here's a link to the ACA version.

There are Premium Tax Credits, which OP mentioned, and also Cost Sharing Reductions. The word subsidy is ambiguous although in common use. The PTC is available to those with an MAGI less than 400% of the previous year's federal poverty guideline. The income estimate applies to this aspect. At tax time any PTCs received in advance are reconciled with what they really should be given realized income, and any that weren't paid to you are sent, and any you shouldn't have received under the law you pay back. There is no penalty for the latter, as long as you comply with other requirements about timely filing, withholding, and payment.

The CSRs reduce copays and out-of-pocked maximums, and are available only on silver-level plans, for those below 250% and too high for Medicaid to apply, and are not reconciled.

As I mentioned, a legal anomaly means in some states there exist people who with 101% are eligible, but at 99% would not be.

I hope that's helpful.

PJW
Normally, I have no income other than CG's, dividend, and interest income, so much roth convert in order to attain sufficient MAGI levels in order to quality for the Silver 87 plan. Unfortunately, this year, I have unanticipated large CG's which will in fact disqualify me for any PTC's/subsidies. I am not looking forward to the large tax bill as a result of this, but it is what it is. It's my understanding even though I will have to repay all of the PTC's obtained in advance this year, I will not have to repay the CSR's (otherwise known as subsidies). I find this somewhat amazing as IIRC my CSR's amounted to over $2K.
Cost sharing reductions are not tax credits. Additionally, unlike premium tax credits, if your income goes up so that you would no longer qualify for cost-sharing reductions, you will not have to repay that out-of-pocket help when you file taxes.
http://workingamericahealthcare.org/how ... tions-work

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Phineas J. Whoopee
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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by Phineas J. Whoopee » Wed Oct 17, 2018 2:19 pm

2015 wrote:
Wed Oct 17, 2018 9:20 am
...
Normally, I have no income other than CG's, dividend, and interest income, so much roth convert in order to attain sufficient MAGI levels in order to quality for the Silver 87 plan. Unfortunately, this year, I have unanticipated large CG's which will in fact disqualify me for any PTC's/subsidies. I am not looking forward to the large tax bill as a result of this, but it is what it is. It's my understanding even though I will have to repay all of the PTC's obtained in advance this year, I will not have to repay the CSR's (otherwise known as subsidies). I find this somewhat amazing as IIRC my CSR's amounted to over $2K.
...
Sorry to hear about the unanticipated capital gains, unless they also were desired. With respect to cost-sharing reductions, that's the way Congress wrote it. Typical advice around here, which you didn't contradict, is to fully follow laws but arrange one's affairs to minimize taxes.

PJW

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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by wrongfunds » Wed Oct 17, 2018 3:41 pm

JBTX wrote:
Tue Oct 16, 2018 7:02 pm
Just a thought, not sure how workable it is.

Gambling winnings are taxable. Obviously when you gamble sometimes you win and sometimes you lose. Gambling winnings are taxable and raise agi and losses are only deductible to the extent that offset winnings and you itemize them. Most people can't itemize now so losses are effectively not deductible and even if you had enough deductions they dont lower agi as they are itemized deduction .

Go play a game like craps. Play the 50/50 bets. Every time you win cash out and log it. Don't log your losses, or log them separately since the are not deductible.

I realize it's kind of a cockeyed scheme but it might actually work. The downside is of you get unlucky and lose a lot more than you win.

This article would actually work in reverse for you.

https://www.ajccpas.com/blog/did-you-kn ... osts/41890
Under what circumstances, IRS will require proof for gambling "wins"? Why do they need to be documented, certified, notarized?
Frankly, the original question seems to be very perplexing. There is a box for "other income" in the tax form. Nowhere does it say that you have to attach corresponding W2 type of paper to your tax form. Heck, the OP could say "I stole the money" and IRS will NOT ask for the proof!

So why the original question in the first place?

2015
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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by 2015 » Wed Oct 17, 2018 7:54 pm

Phineas J. Whoopee wrote:
Wed Oct 17, 2018 2:19 pm
2015 wrote:
Wed Oct 17, 2018 9:20 am
...
Normally, I have no income other than CG's, dividend, and interest income, so much roth convert in order to attain sufficient MAGI levels in order to quality for the Silver 87 plan. Unfortunately, this year, I have unanticipated large CG's which will in fact disqualify me for any PTC's/subsidies. I am not looking forward to the large tax bill as a result of this, but it is what it is. It's my understanding even though I will have to repay all of the PTC's obtained in advance this year, I will not have to repay the CSR's (otherwise known as subsidies). I find this somewhat amazing as IIRC my CSR's amounted to over $2K.
...
Sorry to hear about the unanticipated capital gains, unless they also were desired. With respect to cost-sharing reductions, that's the way Congress wrote it. Typical advice around here, which you didn't contradict, is to fully follow laws but arrange one's affairs to minimize taxes.

PJW
Yes, the unanticipated CG's came about from an unexpected (but quite wise, IIDSSM) pivot in strategy this year based on desiring to take short-term risk off the table (based on my own personal situation, goals, and microeconomics). I didn't foresee this change when strategizing PTC's/CSR's last year. The PTC repayment and higher taxes are my price to pay for mitigating risk. Keeping the CSR's is a surprise, but I was ready to repay them as well. I agree engaging in fraud to minimize taxes in any way is a welcome mat for trouble.

wrongfunds
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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by wrongfunds » Thu Oct 18, 2018 10:31 am

Tell IRS that you hit on the slot machine aka write "Gambling Wins" $3456 on your Form 1040 Line 21 which just happens to put you with the exact AGI needed for you. Seriously, are you off the target by hundreds of thousand dollars or by couple of thousand dollars?

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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by LadyGeek » Thu Oct 18, 2018 3:23 pm

Discussions of dishonest behavior or bypassing the law is totally unacceptable. Failure to report losses, or increasing income without a legitimate source is tax evasion. The amount of the discrepancy is not relevant.

Please stay focused on helping the OP within the legal framework.
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BrianJM
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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by BrianJM » Fri Oct 19, 2018 2:25 pm

LadyGeek wrote:
Thu Oct 18, 2018 3:23 pm
Discussions of dishonest behavior or bypassing the law is totally unacceptable. Failure to report losses, or increasing income without a legitimate source is tax evasion. The amount of the discrepancy is not relevant.

Please stay focused on helping the OP within the legal framework.
Thanks for jumping in. I agree completely - I have no intention of falsifying information on my tax return. There are moral/ethical and legal reasons why I would not do so, but it does not make sense financially to pay additional taxes on income (that was not truly earned) when I can reap the benefit of a Roth conversion.
michaeljc70 wrote:
Tue Oct 16, 2018 7:14 pm
I'm not sure what type of business you have or how much more income you need, so this may not work. But maybe you can get customers/clients to pay you early bringing 2019 income into 2018. You could offer them a discount to encourage them.
This is a perfectly viable option in my business, and it is a marketing initiative I intend to launch very soon.
boglesmind wrote:
Tue Oct 16, 2018 7:45 pm
A common advice on this forum is to not wait until the last days of December to do the Roth conversion in order to avoid any issues / brokerage glitches that *may* arise or at least have enough time to catch and fix them.

Boglesmind
Thank you!
celia wrote:
Tue Oct 16, 2018 7:51 pm
It doesn't matter if you deduct the contribution or not. If you do deduct it and recharacterize or convert, it just gets added back into your income and you will pay the same in taxes as if you didn't deduct it. Where the difference to you comes in is if the GROWTH is taxed or not. (You WANT it to be taxed in a Roth conversion, so it increases your income.)

BTW, If you want to hit your target AGI to the dollar, you can recharacterize an exact dollar amount early next year. It will be as if that amount had originally been contributed to the Roth.
Excellent advice. Thanks!

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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by bhsince87 » Fri Oct 19, 2018 2:30 pm

Not to derail the thread, but do some folks think that not taking all deductions you're entitled to is unethical? Or even illegal?

Such a thought never occurred to me.
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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by LadyGeek » Fri Oct 19, 2018 2:39 pm

Let's not derail the thread. Conjecture on ethics is never productive.
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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by tfb » Fri Oct 19, 2018 7:14 pm

As it has already been pointed out, the AGI doesn't need to be inflated. You don't have to pay back PTC when your AGI is too low. You still may want to increase AGI but you don't have to.
Harry Sit, taking a break from the forums.

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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by BrianJM » Fri Oct 19, 2018 10:19 pm

tfb wrote:
Fri Oct 19, 2018 7:14 pm
As it has already been pointed out, the AGI doesn't need to be inflated. You don't have to pay back PTC when your AGI is too low. You still may want to increase AGI but you don't have to.

Premium Tax Credits do have to be paid back if income is too low. At least, in the state I reside in, they do. In the event that a family/child qualifies for CHIP but did not obtain it, then the entire PTC has to be paid back. The enrollment and life change processes stress this multiple times through online and paper notifications.

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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by tfb » Fri Oct 19, 2018 11:51 pm

BrianJM wrote:
Fri Oct 19, 2018 10:19 pm
tfb wrote:
Fri Oct 19, 2018 7:14 pm
As it has already been pointed out, the AGI doesn't need to be inflated. You don't have to pay back PTC when your AGI is too low. You still may want to increase AGI but you don't have to.

Premium Tax Credits do have to be paid back if income is too low. At least, in the state I reside in, they do. In the event that a family/child qualifies for CHIP but did not obtain it, then the entire PTC has to be paid back. The enrollment and life change processes stress this multiple times through online and paper notifications.
Are you sure it's applied retroactively? In any month your reasonably projected income makes you ineligible. Then only in the last minute your income unexpectedly falls short. Now they say you should've been in Medicaid/CHIP all year when they would not have approved you at any point if you applied? If you already project that your income is eligible for Medicaid/CHIP now, you apply for it. It takes you out of ACA coverage at that point. The advanced PTC stops. What was already paid still stays. That's not paying back the PTC.
Harry Sit, taking a break from the forums.

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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by Zonian59 » Sat Oct 20, 2018 2:08 am

I'm inflating AGI for a different reason.

At this time, and for the past two years after I was laid off, my actual income from interest and dividends entitles me to Medi-Cal benefits, which I DID NOT want to accept as it would be put me in a lower quality level of health insurance benefit, i.e., Bronze.

So I inflated my AGI above the Medi-Cal threshold just enough to qualify for the Silver 94 Plan. Breakdown of income included interest and dividends plus estimated capital gains from sales of taxable shares plus estimated Trad IRA to Roth IRA conversions. The trick is to not have actual AGI exceeding the estimate. But if I can get a tax refund to offset the payback or break even, I'll be happy.

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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by madbrain » Sat Oct 20, 2018 3:16 am

I don't really follow why one would need to inflate their AGI in this case. But if one wanted to, one way I can think of is to buy some very tax inefficient investment, such as junk bonds, or some funds that are really just returning the capital as dividends, in a taxable account. For example :
https://www.fidelity.com/learning-cente ... l-part-one

Those are funds that you would normally prefer to hold in a tax deferred account, or not at all if you are a Boglehead typically. I still hold HY in my Roth IRA. But never invested in the CEFs as those look just too opaque. HY bond funds generally pay interest monthly, so there would be 2 distributions left for this tax year. Not sure about the CEFs.

Of course, depending on how much extra taxable income you want to generate, you might need to buy a large amount of these tax-inefficient investments. Given how little time is left in the year, you might have to use leverage (HELOC), another huge red flag for bogleheads (borrowing to invest). This is obviously risky since you have to pay it back with interest. You would have to hope the interest from the investments at least covers the interest on the HELOC. And of course, HELOC interest isn't deductible anymore under tax reform, so it wouldn't offset your taxable investment interest.

More than likely, with rising interest rates, you would end up with a capital loss on paper on your investments, which you would have to delay realizing until another tax year, but of course you can only deduct $3K net in you are in the red. Anyway, this has the potential to massively backfire so you better be sure about your tax situation if you want to try this :)

Maybe for people who are in states that haven't expanded Medicaid, and have too low of a taxable income, but have assets, it is a viable strategy in order to raise income to qualify for the ACA premium tax credit. Cost sharing subsidies for silver plans are still around in some states (California found a workaround). CA expanded Medicaid though. Not the OP's situation, however.

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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by Katietsu » Sat Oct 20, 2018 7:41 am

bhsince87 wrote:
Fri Oct 19, 2018 2:30 pm
Not to derail the thread, but do some folks think that not taking all deductions you're entitled to is unethical? Or even illegal?

Such a thought never occurred to me.
It never occurred to you, likely, because you associate a higher income with a higher tax liability. For some, a higher income can be associated with an increased tax refund. This comes up most frequently with the earned income tax credit. For instance, the IRS has emphasized that it is fraud to inflate your income to get a higher EITC by not reporting all your Sch C expenses. I would assume that the same would apply in relationship to the premium tax credit.

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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by Phineas J. Whoopee » Sat Oct 20, 2018 3:20 pm

madbrain wrote:
Sat Oct 20, 2018 3:16 am
...
Maybe for people who are in states that haven't expanded Medicaid, and have too low of a taxable income, but have assets, it is a viable strategy in order to raise income to qualify for the ACA premium tax credit. Cost sharing subsidies for silver plans are still around in some states (California found a workaround). CA expanded Medicaid though. Not the OP's situation, however.
Cost-sharing reductions still apply in all states. That aspect of the law has not changed. The federal government stopped paying for them, but insurance companies are still legally required to offer them.

I will go no further than my simple factual statement, to avoid wandering into a political debate.

PJW

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Re: Inflating AGI to avoid paying back ACA Premium Tax Credit

Post by BrianJM » Tue Oct 23, 2018 10:41 am

tfb wrote:
Fri Oct 19, 2018 11:51 pm
BrianJM wrote:
Fri Oct 19, 2018 10:19 pm
tfb wrote:
Fri Oct 19, 2018 7:14 pm
As it has already been pointed out, the AGI doesn't need to be inflated. You don't have to pay back PTC when your AGI is too low. You still may want to increase AGI but you don't have to.

Premium Tax Credits do have to be paid back if income is too low. At least, in the state I reside in, they do. In the event that a family/child qualifies for CHIP but did not obtain it, then the entire PTC has to be paid back. The enrollment and life change processes stress this multiple times through online and paper notifications.
Are you sure it's applied retroactively? In any month your reasonably projected income makes you ineligible. Then only in the last minute your income unexpectedly falls short. Now they say you should've been in Medicaid/CHIP all year when they would not have approved you at any point if you applied? If you already project that your income is eligible for Medicaid/CHIP now, you apply for it. It takes you out of ACA coverage at that point. The advanced PTC stops. What was already paid still stays. That's not paying back the PTC.
My income projection varies greatly, for reasons I won't get into in detail; it's not ideal, but that's what it is. I would literally have to reevaluate income monthly to follow the guidelines. This is what this year would have looked like this year for PTC eligibility. (Last year was not an issue.)
- Jan: Eligible
- Feb: Eligible
- Mar: Eligible
- Apr: Ineligible (would need CHIP)
- May: Ineligible (would need CHIP)
- Jun: Eligible
- Jul: Ineligible (would need CHIP)
- Aug: Ineligible (would need CHIP)
- Sept: Eligible
- Oct: Eligible
- Nov-Dev: Unsure

This is the notification that Healthcare.gov provides upon enrollment:
If you enroll in a Marketplace plan and later become eligible for other qualifying coverage, like Medicaid, CHIP,
Medicare, or coverage through a job, you won’t be eligible for advance payments of the premium tax credit,
although you can keep your Marketplace plan and pay the full premium. If you become eligible for other
qualifying coverage, you must contact the Marketplace to end your advance payments of the premium tax
credit and let the Marketplace know if you also want to end your health plan. If you don’t stop the advance
payments of your premium tax credit to your health insurance company, you may need to pay back the
payments paid on your behalf.
So, unless I want to re-evaluate my income monthly, I believe my only option is the re-evaluate towards the end of the year and make a Roth conversion to increase AGI if necessary.

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