How does part-year dependent affect ACA premium subsidy?

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Topic Author
FireAway
Posts: 124
Joined: Mon Jan 29, 2018 3:56 pm

How does part-year dependent affect ACA premium subsidy?

Post by FireAway »

I expect my son to graduate college next year and become gainfully employed. So, for 6+ months he'll be a dependant, and for slightly less than that he won't be. I'm pretty sure the IRS will let me claim him as a dependant for tax purposes (and I don't think dependency is pro-rated), but I'm wondering how this status change will affect my ACA premium subsidy, especially the MAGI cliff. I usually manage my income carefully to stay below the 400% cliff, but I'm not sure where that cliff is in this situation. We would be going from a family of 4 to a family of 3 midyear, and different cliffs apply for these family sizes.

If I provide total support (and insurance) for only half the year, are we a family of 4? 3? 3.5?
Also, as a student, his income is small, and I have never had to claim it as family income against the cliff MAGI. However, if he gets a job after graduation, will I need to claim any part of his income against my MAGI?

Any other pitfalls to be aware of?
JGoneRiding
Posts: 1973
Joined: Tue Jul 15, 2014 3:26 pm

Re: How does part-year dependent affect ACA premium subsidy?

Post by JGoneRiding »

I dont think the IRS will let you claim.him at all. The IRS considers things as of dec 31. I was married on Sept 12. We had to pay 2k in penalties because it was never thought out about mid year changes like most other things are.

I would set your family status as it will likely be on dec 31 and then if you get a credit after all more to you!
marcopolo
Posts: 3850
Joined: Sat Dec 03, 2016 10:22 am

Re: How does part-year dependent affect ACA premium subsidy?

Post by marcopolo »

FireAway wrote: Sat Nov 02, 2019 12:25 pm I expect my son to graduate college next year and become gainfully employed. So, for 6+ months he'll be a dependant, and for slightly less than that he won't be. I'm pretty sure the IRS will let me claim him as a dependant for tax purposes (and I don't think dependency is pro-rated), but I'm wondering how this status change will affect my ACA premium subsidy, especially the MAGI cliff. I usually manage my income carefully to stay below the 400% cliff, but I'm not sure where that cliff is in this situation. We would be going from a family of 4 to a family of 3 midyear, and different cliffs apply for these family sizes.

If I provide total support (and insurance) for only half the year, are we a family of 4? 3? 3.5?
Also, as a student, his income is small, and I have never had to claim it as family income against the cliff MAGI. However, if he gets a job after graduation, will I need to claim any part of his income against my MAGI?

Any other pitfalls to be aware of?
We are in the middle of this right. Here is my understanding of how this works.

The test for 50% support to be dependent is on a annual basis. There is no such thing as a part-year dependent. It does not matter if you provide 100% support for half the year or 50% support for the full year. As long as you provide more than 50% of the entire year's support, then you can claim dependent.

But, if possible, it MAY be to your advantage if the child ends up NOT being a dependent.

If they are a dependent , then all their income gets included in your family income when computing eligibility for subsidy. This can push you over the cliff if the new grad got a good job out of college.

If they are independent then you can treat them and your self as different "tax families" that shared a policy. Then each family has a separate cliff.

Here are some numbers.

If dependent:
Then you are a family of 4, and your cliff (assuming you don't live in Alaska or Hawaii) is $103,000 ($25,750 x 400%).
This includes all income from all 4 of you.

If not a dependent:
You are a family of 3 and a separate family of one. Your cliffs are $85,320 ($21,330 x 400%) for your family of 3 plus $49.960 ($12,490 x 400%) for the family of 1. So, your total cliff income is $135,280. This can be a big help, depending on how much income the newly independent child ends up having.

For our family, it will make the difference between staying within the cliff or going over. Son, will be just under the 1 person cliff after deducting his 401k and IRA savings from his 6 mo of income. We will also be just under the 3 person cliff. If we had added everything together and been a family of 4, we would have fallen (hard) off the cliff.

It does make filing your taxes a bit more complicated, and it kinds of links your and your child's return. But, there are examples of how to handle this scenario in of the tax form instructions.

I will say again, this stuff is way too complicated.

Good luck
Last edited by marcopolo on Sat Nov 02, 2019 3:50 pm, edited 1 time in total.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Topic Author
FireAway
Posts: 124
Joined: Mon Jan 29, 2018 3:56 pm

Re: How does part-year dependent affect ACA premium subsidy?

Post by FireAway »

Thanks marco, that's very helpful. I hadn't thought about the 'separate families' aspect. Although this will help me preserve the subsidy, it does mean I'll need to crank my MAGI down substantially!
One minor correction to your numbers, I think the standard FPL level used for 2020 coverage is 25,750 (103,000 for family of 4), slightly higher than what you listed.
marcopolo
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Joined: Sat Dec 03, 2016 10:22 am

Re: How does part-year dependent affect ACA premium subsidy?

Post by marcopolo »

FireAway wrote: Sat Nov 02, 2019 3:10 pm Thanks marco, that's very helpful. I hadn't thought about the 'separate families' aspect. Although this will help me preserve the subsidy, it does mean I'll need to crank my MAGI down substantially!
One minor correction to your numbers, I think the standard FPL level used for 2020 coverage is 25,750 (103,000 for family of 4), slightly higher than what you listed.
You are correct on the FPL number, I misread it. I corrected my post above to fix that.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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teen persuasion
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Re: How does part-year dependent affect ACA premium subsidy?

Post by teen persuasion »

Is your son under 26?

If so, he can still be on "your" health insurance. One quirk to keep in mind is if you use an HDHP and HSA, he would be eligible for his own family level HSA contribution if he is not your dependent. It's tricky, especially thru the ACA.

While DS2 was under age 26, we carried him on our family plan thru DH's employer. As DS2 was not our dependent, we couldn't pay for his medical expenses with our HSA, so I encouraged him to open and fund his own, at least a bit, to start the clock - he could only reimburse himself for expenses incurred after the account was open. As he is technically on a family plan, he can fund it to the family max not single as you'd expect, and we can fund ours to the family max.

I never did figure out how to add DS2 when DH was between jobs and we utilized the marketplace. I was told we set our family plan first, and then he gets his own added/linked to it, or something like that, but we got pushed into Medicaid based on monthly numbers instead of the annual income I expected (no income for DH between jobs for a few months).

The lesson I learned (beyond the family HSA limit for non-dependents) is to use a health navigator next time I need to use the ACA. They know all these quirky rules and how to set things up properly.
Domadosolo
Posts: 82
Joined: Wed Oct 02, 2019 10:53 am

Re: How does part-year dependent affect ACA premium subsidy?

Post by Domadosolo »

Currently Fam of 3, soon to be fam of 2 when child graduates in Jun 2021
Child has a decent job offer and has a compensation plan that is
Base gross comp: 33K for 6.5 mos and
Housing : 10K for around 6.5 mos, which may or may not be grossed up to 15K, depending on corp ability to expense housing
So min Gross : 33K
Max Gross : 48K

Im thinking of splitting into 2 family groups
1.) DW and Me, and use our MAGI below the cliff for 2
2.) Child will be in a separate family group.

Qn1: Is this the right approach?
Qn2: What should the child use for their ACA application?
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