Falling off the ACA subsidy cliff

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Topic Author
rjsob58
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Falling off the ACA subsidy cliff

Post by rjsob58 » Wed Oct 31, 2018 8:50 am

I think I may end up falling off the ACA subsidy cliff. My best estimate puts me $4-6K above the 400% poverty line. I'm on an ACA plan and have been getting the subsidies amounting to almost $1500 per month. So 2 questions:

1) If I am over the 400% line, I'm required to repay the ENTIRE subsidy, not just a percentage correct? There is no middle ground as best as I can tell.
2) If I've already withdrawn from my IRA for the majority of my 2018 income, can I still contribute (put back) the $6500 max (I'm 60), thereby lowering my MAGI to get under the limit to still qualify for the subsidies?

Any other strategies or suggestions?

Cpadave
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Re: Falling off the ACA subsidy cliff

Post by Cpadave » Wed Oct 31, 2018 8:57 am

As I understand it when you file your 2018 tax return, the amount that you need to pay back is computed with your return based on your MAGI. As to the contribution, if you have earned income of $6500, you should still be able to contribute.

deltaneutral83
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Re: Falling off the ACA subsidy cliff

Post by deltaneutral83 » Wed Oct 31, 2018 9:36 am

I thought the subsidies were tiered (not cliff) and that 400% FPL was just the last tier to receive any subsidy?

bberris
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Re: Falling off the ACA subsidy cliff

Post by bberris » Wed Oct 31, 2018 9:40 am

If less than 60 days have elapsed since your IRA withdrawal you can redeposit it (rollover, even to the same account). Make sure you specify rollover deposit to the broker.
If you have earned income (from working) you can deposit to an IRA.
If your health plan is HSA compliant, you can make a deposit to an HSA.
Realize a capital loss (but this will only get you 3,000 max reduction)

More exotic moves: generate a capital loss from intentional bad investments. (Ask me how!)
Early withdrawal penalty from a CD.

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FiveK
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Re: Falling off the ACA subsidy cliff

Post by FiveK » Wed Oct 31, 2018 9:42 am

rjsob58 wrote:
Wed Oct 31, 2018 8:50 am
1) If I am over the 400% line, I'm required to repay the ENTIRE subsidy, not just a percentage correct?
Correct. You can use a 2018 tax estimation tool such as the personal finance toolbox spreadsheet, that includes ACA effects, to verify.
2) If I've already withdrawn from my IRA for the majority of my 2018 income, can I still contribute (put back) the $6500 max (I'm 60), thereby lowering my MAGI to get under the limit to still qualify for the subsidies?
Yes, but as Cpadave noted, you can contribute only if you have earned income. If it has been <60 days since you took the withdrawal, you may return it.

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Watty
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Re: Falling off the ACA subsidy cliff

Post by Watty » Wed Oct 31, 2018 9:50 am

I am not sure where it would fit in your situation but one thing I am doing is to have a home equity line of credit that I can use instead of IRA withdrawals to help me keep well below the cutoff point. There will be a bit of interest with that but I can use that for the last few months expenses of the year then pay if off in January. That will require some juggling until I am 65 and get on medicare but you might keep that in mind for next year.

mrgeeze
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Re: Falling off the ACA subsidy cliff

Post by mrgeeze » Wed Oct 31, 2018 10:25 am

My understanding is that you DO NOT want to go over the cliff. Note PERIOD.

So,
Tax loss harvesting of investments. Eat some losses.
Contributing to a qualified HSA. This counts as a deduction on ACA MAGI Calculation. That can provide up to $6-7000, basically what you need.

Make sure you get it all in order BEFORE 31-Dec-2018
I usually run a sample tax return to make sure.

If I remember correctly you can make the HSA contrib up to the filing date (april 15)
that may give you some ability to tweak your results, but not in a meth-head tweaking kind of way.

You still have time to put it all in order.
You don't want to go over the cliff

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indexfundfan
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Re: Falling off the ACA subsidy cliff

Post by indexfundfan » Wed Oct 31, 2018 10:29 am

Note: You can contribute to the HSA only if the plan you selected during open enrollment last year was HSA eligible.
My signature has been deleted.

mrgeeze
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Re: Falling off the ACA subsidy cliff

Post by mrgeeze » Wed Oct 31, 2018 10:37 am

indexfundfan wrote:
Wed Oct 31, 2018 10:29 am
Note: You can contribute to the HSA only if the plan you selected during open enrollment last year was HSA eligible.
Important point. +1

xenochrony
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Re: Falling off the ACA subsidy cliff

Post by xenochrony » Wed Oct 31, 2018 10:45 am

I'm in a similar situation such as yourself, projected to fly right off that ACA cliff and if so, would have to pay back $10,000 in subsidies. Last year our MAGI was right below the cliff; this year both wife and myself made more income. I'm pulling every possible lever I can to get below the cliff. One of them is deferring 2 full months of business income from 2018 to 2019. For the remainder of 2018, not having any income coming in will be extraordinarily difficult, and will use my EF to survive that 60 day period. This just pushes a 2018 problem into 2019.
Last edited by xenochrony on Wed Oct 31, 2018 2:14 pm, edited 1 time in total.

Topic Author
rjsob58
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Re: Falling off the ACA subsidy cliff

Post by rjsob58 » Wed Oct 31, 2018 11:01 am

Thanks for all the replies. My last IRA withdrawal was within the last 60 days, so I could return that and be a safe distance from the cliff. But I wouldn't have enough liquid assets to cover expenses through the end of the year. I do have a few options to cover that: 1) I have an existing HELOC (currently $0 balance), 2) I can borrow from my 2 sons, 3) I could sell my car as we don't really need 2 cars at this point. That last one would also mean lower insurance and property taxes.

The borrowing from my sons is not all that appealing. But it is actually their part-time income this year that pushes me over the ACA cliff, even though it doesn't affect my taxes. That was my mistake since I knew it counted toward ACA income, but I didn't keep track of it and they've both worked part-time the entire year.

bdaniel58
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Re: Falling off the ACA subsidy cliff

Post by bdaniel58 » Wed Oct 31, 2018 11:09 am

Watty wrote:
Wed Oct 31, 2018 9:50 am
I am not sure where it would fit in your situation but one thing I am doing is to have a home equity line of credit that I can use instead of IRA withdrawals to help me keep well below the cutoff point. There will be a bit of interest with that but I can use that for the last few months expenses of the year then pay if off in January. That will require some juggling until I am 65 and get on medicare but you might keep that in mind for next year.
What he said. This will be my plan. My home will be paid in full with a huge home equity line. Currently have a 60k line of credit I can use like revolving credit.

doneat53
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Re: Falling off the ACA subsidy cliff

Post by doneat53 » Wed Oct 31, 2018 11:12 am

Not sure the meaning of this but perhaps someone can comment... When I put in an income of 400% FPL in to the health plan finders it usually doesn't generate a "subsidy premium" I have to go another 4-5k lower to actually have the health plan display show a subsidy premium. All this to say you might want to go conservatively below 400% FPL to guarantee not falling off the cliff.

That said it may be the health websites that are at fault and demonstrating 400% above FPL is sufficient for the IRS to grant subsidy.

Doneat

mrgeeze
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Re: Falling off the ACA subsidy cliff

Post by mrgeeze » Wed Oct 31, 2018 11:14 am

xenochrony wrote:
Wed Oct 31, 2018 10:45 am
I'm in a similar situation such as yourself, projected to fly right off that ACA cliff and if so, would have to pay back $10,000 in subsidies. Last year our MAGI was right below the cliff; this year both wife and myself made more income. I'm pulling every possible lever I can to get below the cliff. One of them is deferring 2 full months of business income from 2018 to 2019. I will stop invoicing clients today for the remainder of the year; I will continue providing services to them but will not resume billing them until 1/1/2019. For the remaining 60 days of 2018, not having any income coming in will be extraordinarily difficult, and will use my EF to survive that 60 day period. This just pushes a 2018 problem into 2019.
be careful what you write on the internet.
you are skating on some very thin ice as far as the irs is concerned.
income shifting is something they take great interest in.
you may wish to keep part of your plan out of the public realm

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Sandtrap
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Re: Falling off the ACA subsidy cliff

Post by Sandtrap » Wed Oct 31, 2018 11:24 am

Search the forum threads for "ACA Subsidy Cliff".

Many have fallen :shock:

Fell off last year.
Fee was "Huge" :oops:
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clockman323
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Re: Falling off the ACA subsidy cliff

Post by clockman323 » Wed Oct 31, 2018 11:46 am

xenochrony wrote:
Wed Oct 31, 2018 10:45 am
I'm in a similar situation such as yourself, projected to fly right off that ACA cliff and if so, would have to pay back $10,000 in subsidies. Last year our MAGI was right below the cliff; this year both wife and myself made more income. I'm pulling every possible lever I can to get below the cliff. One of them is deferring 2 full months of business income from 2018 to 2019. I will stop invoicing clients today for the remainder of the year; I will continue providing services to them but will not resume billing them until 1/1/2019. For the remaining 60 days of 2018, not having any income coming in will be extraordinarily difficult, and will use my EF to survive that 60 day period. This just pushes a 2018 problem into 2019.
Suppose you are consistently earning $10-20K above the ACA cliff. Shift some money around to be OK in 2018. You have to pay the full ACA premiums in 2019. Can you take an extra withdrawal from your IRA in 2019 that will be used for living expenses in 2020? The intent is to help get below the cliff in alternate years.

47Percent
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Re: Falling off the ACA subsidy cliff

Post by 47Percent » Wed Oct 31, 2018 11:59 am

rjsob58 wrote:
Wed Oct 31, 2018 11:01 am
Thanks for all the replies. My last IRA withdrawal was within the last 60 days, so I could return that and be a safe distance from the cliff. But I wouldn't have enough liquid assets to cover expenses through the end of the year. I do have a few options to cover that: 1) I have an existing HELOC (currently $0 balance), 2) I can borrow from my 2 sons, 3) I could sell my car as we don't really need 2 cars at this point. That last one would also mean lower insurance and property taxes.

The borrowing from my sons is not all that appealing. But it is actually their part-time income this year that pushes me over the ACA cliff, even though it doesn't affect my taxes. That was my mistake since I knew it counted toward ACA income, but I didn't keep track of it and they've both worked part-time the entire year.
Them contributing to their own IRA is an option. The downside (other than them feeling it is money taken out of their hand) is that it will be taxed at ordinary income rates when withdrawn, whereas it is at near zero rate now. You need to weigh the benefits.

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MP123
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Re: Falling off the ACA subsidy cliff

Post by MP123 » Wed Oct 31, 2018 12:01 pm

clockman323 wrote:
Wed Oct 31, 2018 11:46 am
xenochrony wrote:
Wed Oct 31, 2018 10:45 am
I'm in a similar situation such as yourself, projected to fly right off that ACA cliff and if so, would have to pay back $10,000 in subsidies. Last year our MAGI was right below the cliff; this year both wife and myself made more income. I'm pulling every possible lever I can to get below the cliff. One of them is deferring 2 full months of business income from 2018 to 2019. I will stop invoicing clients today for the remainder of the year; I will continue providing services to them but will not resume billing them until 1/1/2019. For the remaining 60 days of 2018, not having any income coming in will be extraordinarily difficult, and will use my EF to survive that 60 day period. This just pushes a 2018 problem into 2019.
Suppose you are consistently earning $10-20K above the ACA cliff. Shift some money around to be OK in 2018. You have to pay the full ACA premiums in 2019. Can you take an extra withdrawal from your IRA in 2019 that will be used for living expenses in 2020? The intent is to help get below the cliff in alternate years.
Yes, the alternate year approach can work well for some.

If you're over the cliff you might as well go waaay over so that you can stay under the next year.

It's certainly worth planning for 2019 now.

J295
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Re: Falling off the ACA subsidy cliff

Post by J295 » Wed Oct 31, 2018 12:12 pm

Mrgeeze.

Can you explain your comments please. I am aware of no tax principal that prohibits a business from delaying invoicing.

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celia
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Re: Falling off the ACA subsidy cliff

Post by celia » Wed Oct 31, 2018 12:20 pm

47Percent wrote:
Wed Oct 31, 2018 11:59 am
Them contributing to their own IRA is an option. The downside (other than them feeling it is money taken out of their hand) is that it will be taxed at ordinary income rates when withdrawn, whereas it is at near zero rate now. You need to weigh the benefits.
It is to the kids' benefit to contribute to Roth IRAs since their current tax rate is so low. Imagine 40 years of compound growth working for them behind the scenes. I wouldn't take that away from them just to solve a short term "problem".

But depending on their situation it may be better for them to file their own taxes this year. Then YOU wouldn't have to include THEIR income. I don't know how that impacts ACA for your family.

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teen persuasion
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Re: Falling off the ACA subsidy cliff

Post by teen persuasion » Wed Oct 31, 2018 12:34 pm

celia wrote:
Wed Oct 31, 2018 12:20 pm
47Percent wrote:
Wed Oct 31, 2018 11:59 am
Them contributing to their own IRA is an option. The downside (other than them feeling it is money taken out of their hand) is that it will be taxed at ordinary income rates when withdrawn, whereas it is at near zero rate now. You need to weigh the benefits.
It is to the kids' benefit to contribute to Roth IRAs since their current tax rate is so low. Imagine 40 years of compound growth working for them behind the scenes. I wouldn't take that away from them just to solve a short term "problem".

But depending on their situation it may be better for them to file their own taxes this year. Then YOU wouldn't have to include THEIR income. I don't know how that impacts ACA for your family.
I believe the issue is whether the kids are dependents or not, vs whether they file. A quick search says that you include their income if they are dependents. Of course, earning more can shift the dependency test, possibly.

scrabbler1
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Re: Falling off the ACA subsidy cliff

Post by scrabbler1 » Wed Oct 31, 2018 12:36 pm

I went over the cliff last year, costing me a fairly small subsidy of $400. I just learned the other day that I will be going over the cliff again this year, and it will cost me a subsidy of nearly $1,000. Both years it's an unusually large cap gain distribution in a stock fund which has a large, unrealized cap gain (so I can't really escape it).

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PrettyCoolWorkshop
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Re: Falling off the ACA subsidy cliff

Post by PrettyCoolWorkshop » Wed Oct 31, 2018 12:41 pm

It sounds like your sons are still your dependents, but old enough to work, and that is why their income counts towards your MAGI. Is that correct? Have them contribute the maximum they can towards IRA's.

Now, getting creative... Double check me on these techniques because they might be wrong/have IRS doctrines against them.

Start a sole proprietorship that sells a physical good. Buy inventory this year and don't sell hardly any of it until next year. Or perform other business expenses that can be expensed (not needing to be depreciated over multiple years). Seems like you are already running a business w/ clients, so this might be a good time to invest in newer equipment.

Buy shares of leveraged 3x long ETF's and 3x short ETF's. Sell whichever one does poorly to generate capital losses.



Strats that leave you poorer: Go to the doctor and spend enough money to generate deductible medical expenses (if you are itemizing, which is getting more rare nowadays). Donate to charity.
Be greedy and fearful. All the time.

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MP123
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Re: Falling off the ACA subsidy cliff

Post by MP123 » Wed Oct 31, 2018 12:43 pm

teen persuasion wrote:
Wed Oct 31, 2018 12:34 pm
celia wrote:
Wed Oct 31, 2018 12:20 pm
47Percent wrote:
Wed Oct 31, 2018 11:59 am
Them contributing to their own IRA is an option. The downside (other than them feeling it is money taken out of their hand) is that it will be taxed at ordinary income rates when withdrawn, whereas it is at near zero rate now. You need to weigh the benefits.
It is to the kids' benefit to contribute to Roth IRAs since their current tax rate is so low. Imagine 40 years of compound growth working for them behind the scenes. I wouldn't take that away from them just to solve a short term "problem".

But depending on their situation it may be better for them to file their own taxes this year. Then YOU wouldn't have to include THEIR income. I don't know how that impacts ACA for your family.
I believe the issue is whether the kids are dependents or not, vs whether they file. A quick search says that you include their income if they are dependents. Of course, earning more can shift the dependency test, possibly.
And getting the kids (and their income) out of the household would probably be a net negative since larger households get larger subsidies and have a higher "cliff".

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teen persuasion
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Re: Falling off the ACA subsidy cliff

Post by teen persuasion » Wed Oct 31, 2018 12:57 pm

They can be a member of the household without being a dependent. If they are not dependents, though, you cannot use your HSA funds for their medical expenses.

The kids can each open their own HSA, and fund it to the family max, if they are in your family HDHP plan. This is assuming everyone is in an HSA approved plan.

It's confusing having kids who are no longer dependents for tax purposes (but still dependents for FAFSA purposes) on your insurance until age 26. When we briefly used the ACA for insurance between jobs, we were told to apply for the family including the kids still at home, and after we had coverage DS2 would apply and somehow link his to ours - it was unclear at the time.

47Percent
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Re: Falling off the ACA subsidy cliff

Post by 47Percent » Wed Oct 31, 2018 1:11 pm

celia wrote:
Wed Oct 31, 2018 12:20 pm
47Percent wrote:
Wed Oct 31, 2018 11:59 am
Them contributing to their own IRA is an option. The downside (other than them feeling it is money taken out of their hand) is that it will be taxed at ordinary income rates when withdrawn, whereas it is at near zero rate now. You need to weigh the benefits.
It is to the kids' benefit to contribute to Roth IRAs since their current tax rate is so low. Imagine 40 years of compound growth working for them behind the scenes. I wouldn't take that away from them just to solve a short term "problem".

But depending on their situation it may be better for them to file their own taxes this year. Then YOU wouldn't have to include THEIR income. I don't know how that impacts ACA for your family.
I don't know how else to put this nicely.. But the above sentiment is just plain WRONG.

a) just filing their own taxes will not let you out of including their income -- if they live with you. Dependent fulltime college kids who live outside of home can't exclude either... those are the ACA rules, and it does make sense.

b) ACA cliff is where you could potentially end up paying $15K for $100 of additional income (or even 0.51 cents in the extreme case). No amount of deferral or compounding can compensate for that.

That was the reason I mentioned "you need to weigh the benefits", considering the situation. But having that option for ACA cliff management is better than not having it.

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celia
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Re: Falling off the ACA subsidy cliff

Post by celia » Wed Oct 31, 2018 1:45 pm

47Percent wrote:
Wed Oct 31, 2018 1:11 pm
celia wrote:
Wed Oct 31, 2018 12:20 pm
47Percent wrote:
Wed Oct 31, 2018 11:59 am
Them contributing to their own IRA is an option. The downside (other than them feeling it is money taken out of their hand) is that it will be taxed at ordinary income rates when withdrawn, whereas it is at near zero rate now. You need to weigh the benefits.
It is to the kids' benefit to contribute to Roth IRAs since their current tax rate is so low. Imagine 40 years of compound growth working for them behind the scenes. I wouldn't take that away from them just to solve a short term "problem".

But depending on their situation it may be better for them to file their own taxes this year. Then YOU wouldn't have to include THEIR income. I don't know how that impacts ACA for your family.
I don't know how else to put this nicely.. But the above sentiment is just plain WRONG.

a) just filing their own taxes will not let you out of including their income -- if they live with you. Dependent fulltime college kids who live outside of home can't exclude either... those are the ACA rules, and it does make sense.

b) ACA cliff is where you could potentially end up paying $15K for $100 of additional income (or even 0.51 cents in the extreme case). No amount of deferral or compounding can compensate for that.

That was the reason I mentioned "you need to weigh the benefits", considering the situation. But having that option for ACA cliff management is better than not having it.
47Percent, I think you are looking at this just from the ACA-eligibility perspective whereas I'm looking at the long term view. I also assumed the kids were dependents. What does that have to do with them (or the parents) contributing to a Roth (for them)? The OP would still need to lower their family income to qualify for the subsidy they want. The difficulty seems to be trying to maintain a low income when 3 or 4 people are working in this family. Possibly someone could stop working until the end of the year.(??)

For my information, if there are separate tax returns for kids and they did contribute to a tax-deferred IRA, how is that accounted for on the parents' return to show they qualified for the subsidy?

If they didn't have separate returns, but they contributed to a tax-deferred IRA, how is that accounted for on the parents' return?
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.

mnnice
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Re: Falling off the ACA subsidy cliff

Post by mnnice » Wed Oct 31, 2018 1:59 pm

rjsob58 wrote:
Wed Oct 31, 2018 11:01 am
Thanks for all the replies. My last IRA withdrawal was within the last 60 days, so I could return that and be a safe distance from the cliff. But I wouldn't have enough liquid assets to cover expenses through the end of the year. I do have a few options to cover that: 1) I have an existing HELOC (currently $0 balance), 2) I can borrow from my 2 sons, 3) I could sell my car as we don't really need 2 cars at this point. That last one would also mean lower insurance and property taxes.

The borrowing from my sons is not all that appealing. But it is actually their part-time income this year that pushes me over the ACA cliff, even though it doesn't affect my taxes. That was my mistake since I knew it counted toward ACA income, but I didn't keep track of it and they've both worked part-time the entire year.
So for ACA purposes minor children’s income counts? If so I learned something today :wink:

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rjsob58
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Re: Falling off the ACA subsidy cliff

Post by rjsob58 » Wed Oct 31, 2018 2:10 pm

I worked as a consultant part-time this year. I only billed in 3 months of the year. If I understand it correctly, that still qualifies me as "self employed" which then gives me the self-employed health insurance deduction. That allows me to deduct my ACA premium payments directly off my AGI, not only reducing my tax liability, but also reduces my MAGI for the ACA subsidy limit. Is that correct?

bberris
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Re: Falling off the ACA subsidy cliff

Post by bberris » Wed Oct 31, 2018 2:11 pm

PrettyCoolWorkshop wrote:
Wed Oct 31, 2018 12:41 pm
...


Strats that leave you poorer: Go to the doctor and spend enough money to generate deductible medical expenses (if you are itemizing, which is getting more rare nowadays). Donate to charity.
Charitable deductions do not reduce your ACA income. Only medical expenses in excess of 10 % of your income are deductible in 2018.

marcopolo
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Re: Falling off the ACA subsidy cliff

Post by marcopolo » Wed Oct 31, 2018 2:32 pm

doneat53 wrote:
Wed Oct 31, 2018 11:12 am
Not sure the meaning of this but perhaps someone can comment... When I put in an income of 400% FPL in to the health plan finders it usually doesn't generate a "subsidy premium" I have to go another 4-5k lower to actually have the health plan display show a subsidy premium. All this to say you might want to go conservatively below 400% FPL to guarantee not falling off the cliff.

That said it may be the health websites that are at fault and demonstrating 400% above FPL is sufficient for the IRS to grant subsidy.

Doneat
The Premium Tax Credits (PTC) for each year is computed based on the previous year's FPL. Are you using the FPL from the same year? That might explain the discrepancy, as the FPL is adjusted each year for inflation. I just recently played around with the 2019 estimates on Healthcare.gov using 2018 FPL numbers, and they appear to provide accurate results (I varied income $100 increments).

I am still trying to figure out the trade-off between Roth Conversion benefit down the road vs taking PTC now, wish there was an accurate calculator for that :?
Once in a while you get shown the light, in the strangest of places if you look at it right.

doneat53
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Re: Falling off the ACA subsidy cliff

Post by doneat53 » Wed Oct 31, 2018 4:22 pm

marcopolo wrote:
Wed Oct 31, 2018 2:32 pm
The Premium Tax Credits (PTC) for each year is computed based on the previous year's FPL. Are you using the FPL from the same year?
Thanks, that explains it, I was using 2018 FPL for 2018 healthplans.

HereToLearn
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Re: Falling off the ACA subsidy cliff

Post by HereToLearn » Wed Oct 31, 2018 5:48 pm

bberris wrote:
Wed Oct 31, 2018 2:11 pm
PrettyCoolWorkshop wrote:
Wed Oct 31, 2018 12:41 pm
...


Strats that leave you poorer: Go to the doctor and spend enough money to generate deductible medical expenses (if you are itemizing, which is getting more rare nowadays). Donate to charity.
Charitable deductions do not reduce your ACA income. Only medical expenses in excess of 10 % of your income are deductible in 2018.
The threshold for deducting medical expenses is 7.5% in 2017 & 2018. It resets to 10% for 2019, for filers of all ages. I believe those over age 65 had the 7.5% threshold in 2016, and the tax act passed at the end of last year renewed that level for 65+ and brought it down to 7.5% for all filers.

michaeljc70
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Re: Falling off the ACA subsidy cliff

Post by michaeljc70 » Wed Oct 31, 2018 6:25 pm

bberris wrote:
Wed Oct 31, 2018 9:40 am
If less than 60 days have elapsed since your IRA withdrawal you can redeposit it (rollover, even to the same account). Make sure you specify rollover deposit to the broker.
If you have earned income (from working) you can deposit to an IRA. It won't be deductible if covered by another employer plan
If your health plan is HSA compliant, you can make a deposit to an HSA.
Realize a capital loss (but this will only get you 3,000 max reduction) It will get you a bigger reduction in income if you had other capital gains

More exotic moves: generate a capital loss from intentional bad investments. (Ask me how!)
Early withdrawal penalty from a CD.

michaeljc70
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Re: Falling off the ACA subsidy cliff

Post by michaeljc70 » Wed Oct 31, 2018 6:31 pm

rjsob58 wrote:
Wed Oct 31, 2018 2:10 pm
I worked as a consultant part-time this year. I only billed in 3 months of the year. If I understand it correctly, that still qualifies me as "self employed" which then gives me the self-employed health insurance deduction. That allows me to deduct my ACA premium payments directly off my AGI, not only reducing my tax liability, but also reduces my MAGI for the ACA subsidy limit. Is that correct?
How are you being paid? If you are paid on a 1099 or with a check after billing the client, that is different than being paid on a W-2. It sounds like the former. Have you looked into how much you can contribute to a SEP? Are there business expenses you can move forward? Given your other post I am assuming you are a cash-based taxpayer. We really need more info on your W-2 income, self-employed income, expenses, tax deferred account contributions, etc.

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FiveK
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Re: Falling off the ACA subsidy cliff

Post by FiveK » Wed Oct 31, 2018 7:21 pm

michaeljc70 wrote:
Wed Oct 31, 2018 6:25 pm
bberris wrote:
Wed Oct 31, 2018 9:40 am
If you have earned income (from working) you can deposit to an IRA. It won't be deductible if covered by another employer plan
Why would it not be deductible, assuming OP is within the IRA Deduction Limits?

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Re: Falling off the ACA subsidy cliff

Post by michaeljc70 » Wed Oct 31, 2018 7:24 pm

FiveK wrote:
Wed Oct 31, 2018 7:21 pm
michaeljc70 wrote:
Wed Oct 31, 2018 6:25 pm
bberris wrote:
Wed Oct 31, 2018 9:40 am
If you have earned income (from working) you can deposit to an IRA. It won't be deductible if covered by another employer plan
Why would it not be deductible, assuming OP is within the IRA Deduction Limits?
https://www.irs.gov/retirement-plans/ir ... ion-limits

Retirement plan at work: Your deduction may be limited if you (or your spouse, if you are married) are covered by a retirement plan at work and your income exceeds certain levels.

No retirement plan at work: Your deduction is allowed in full if you (and your spouse, if you are married) aren’t covered by a retirement plan at work.

It is income based. If you make $73k and are single, no IRA deduction if eligible for employer plan.

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MP123
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Re: Falling off the ACA subsidy cliff

Post by MP123 » Wed Oct 31, 2018 7:53 pm

mnnice wrote:
Wed Oct 31, 2018 1:59 pm
rjsob58 wrote:
Wed Oct 31, 2018 11:01 am
Thanks for all the replies. My last IRA withdrawal was within the last 60 days, so I could return that and be a safe distance from the cliff. But I wouldn't have enough liquid assets to cover expenses through the end of the year. I do have a few options to cover that: 1) I have an existing HELOC (currently $0 balance), 2) I can borrow from my 2 sons, 3) I could sell my car as we don't really need 2 cars at this point. That last one would also mean lower insurance and property taxes.

The borrowing from my sons is not all that appealing. But it is actually their part-time income this year that pushes me over the ACA cliff, even though it doesn't affect my taxes. That was my mistake since I knew it counted toward ACA income, but I didn't keep track of it and they've both worked part-time the entire year.
So for ACA purposes minor children’s income counts? If so I learned something today :wink:
ACA looks at household income which includes you/spouse /tax dependents.

So even non-minor children's income potentially counts.

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FiveK
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Re: Falling off the ACA subsidy cliff

Post by FiveK » Wed Oct 31, 2018 8:38 pm

michaeljc70 wrote:
Wed Oct 31, 2018 7:24 pm
FiveK wrote:
Wed Oct 31, 2018 7:21 pm
michaeljc70 wrote:
Wed Oct 31, 2018 6:25 pm
bberris wrote:
Wed Oct 31, 2018 9:40 am
If you have earned income (from working) you can deposit to an IRA. It won't be deductible if covered by another employer plan
Why would it not be deductible, assuming OP is within the IRA Deduction Limits?
https://www.irs.gov/retirement-plans/ir ... ion-limits

Retirement plan at work: Your deduction may be limited if you (or your spouse, if you are married) are covered by a retirement plan at work and your income exceeds certain levels.

No retirement plan at work: Your deduction is allowed in full if you (and your spouse, if you are married) aren’t covered by a retirement plan at work.

It is income based. If you make $73k and are single, no IRA deduction if eligible for employer plan.
Yes, the deduction may be limited but that also means it may not be limited. In the OP's case, being $6K above 400% of the FPL (perhaps a total ~$54K) retains eligibility for an IRA deduction.

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Re: Falling off the ACA subsidy cliff

Post by 2015 » Wed Oct 31, 2018 10:34 pm

Sandtrap wrote:
Wed Oct 31, 2018 11:24 am
Search the forum threads for "ACA Subsidy Cliff".

Many have fallen :shock:

Fell off last year.
Fee was "Huge" :oops:
Oh yea. This year I've just flown off and I see the ground coming up at me real fast, real hard.

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rjsob58
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Re: Falling off the ACA subsidy cliff

Post by rjsob58 » Wed Oct 31, 2018 11:56 pm

michaeljc70 wrote:
Wed Oct 31, 2018 6:31 pm
rjsob58 wrote:
Wed Oct 31, 2018 2:10 pm
I worked as a consultant part-time this year. I only billed in 3 months of the year. If I understand it correctly, that still qualifies me as "self employed" which then gives me the self-employed health insurance deduction. That allows me to deduct my ACA premium payments directly off my AGI, not only reducing my tax liability, but also reduces my MAGI for the ACA subsidy limit. Is that correct?
How are you being paid? If you are paid on a 1099 or with a check after billing the client, that is different than being paid on a W-2. It sounds like the former. Have you looked into how much you can contribute to a SEP? Are there business expenses you can move forward? Given your other post I am assuming you are a cash-based taxpayer. We really need more info on your W-2 income, self-employed income, expenses, tax deferred account contributions, etc.
I am paid with a check after billing the client and get a 1099-MISC from them at the end of the year. No W-2 income except my sons/dependents who will file their own taxes. I have no business expenses, work is strictly by the hour as needed. No tax deferred contributions. All my other income is IRA withdrawals at this point.

Another option is a cash-out refi as I have plenty of equity in the house and have a 5 year ARM where the rate change comes in 2020. So it may be advantageous to lock-in now before interest rates increase again and I can pull enough out to make sure I'm not in the same predicament next year.

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Re: Falling off the ACA subsidy cliff

Post by 47Percent » Thu Nov 01, 2018 11:28 am

celia wrote:
Wed Oct 31, 2018 1:45 pm
47Percent, I think you are looking at this just from the ACA-eligibility perspective whereas I'm looking at the long term view. I also assumed the kids were dependents. What does that have to do with them (or the parents) contributing to a Roth (for them)? The OP would still need to lower their family income to qualify for the subsidy they want. The difficulty seems to be trying to maintain a low income when 3 or 4 people are working in this family. Possibly someone could stop working until the end of the year.(??)

For my information, if there are separate tax returns for kids and they did contribute to a tax-deferred IRA, how is that accounted for on the parents' return to show they qualified for the subsidy?

If they didn't have separate returns, but they contributed to a tax-deferred IRA, how is that accounted for on the parents' return?
[/quote]

Hi Celia..

ACA eligibility perspective vs some long term benefit... I was going by the subject heading..
(You have to have experienced ACA cliff personally to really have a feel for it! It is very very painful. Singing the praise of Roth at that time is like when someone is looking at arm amputation, suggesting they eat more vegetables :) :D )

I never mentioned Roth IRA. You seemed to have read it as Roth. I only mentioned IRA implying TIRA as the whole goal was to reduce AGI.

Working and saving in a TIRA is way better than stopping working.

I am very familiar with how the income rolls up in form 8962 (ACA tax credit). The dependent kid's AGI is rolled up into family income for the subsidy calculations. You have to file a separate return if they had earned income. Can file with the parent's return only if all you have is dividends and cap-gain distributions without any stock sale or any other income.

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Re: Falling off the ACA subsidy cliff

Post by passiveTiger » Thu Nov 01, 2018 12:47 pm

mrgeeze wrote:
Wed Oct 31, 2018 11:14 am
xenochrony wrote:
Wed Oct 31, 2018 10:45 am
I'm in a similar situation such as yourself, projected to fly right off that ACA cliff and if so, would have to pay back $10,000 in subsidies. Last year our MAGI was right below the cliff; this year both wife and myself made more income. I'm pulling every possible lever I can to get below the cliff. One of them is deferring 2 full months of business income from 2018 to 2019. I will stop invoicing clients today for the remainder of the year; I will continue providing services to them but will not resume billing them until 1/1/2019. For the remaining 60 days of 2018, not having any income coming in will be extraordinarily difficult, and will use my EF to survive that 60 day period. This just pushes a 2018 problem into 2019.
be careful what you write on the internet.
you are skating on some very thin ice as far as the irs is concerned.
income shifting is something they take great interest in.
you may wish to keep part of your plan out of the public realm
+1

https://en.wikipedia.org/wiki/Constructive_receipt

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Re: Falling off the ACA subsidy cliff

Post by celia » Thu Nov 01, 2018 4:30 pm

47Percent wrote:
Thu Nov 01, 2018 11:28 am
ACA eligibility perspective vs some long term benefit... I was going by the subject heading..
(You have to have experienced ACA cliff personally to really have a feel for it! It is very very painful. Singing the praise of Roth at that time is like when someone is looking at arm amputation, suggesting they eat more vegetables :) :D )
OK, I see your point. But I also see many people in the forum who have a healthy income who manage to bring their AGI down, just so that they can get the government to subsidize their health care. While what they do may be legal, I believe the intent was for those who truly have a family income of just the lower amount, to be able to get insurance. For example, we have another thread where someone is making about $110K and is trying to bring their income down to something like $55K (for their state). I can see someone who earns $55K getting some help, but the $110K earner doesn't need the help so much.

I also think of it as a family that saves $1,000 a month on subsidized ACA health insurance, then finds out they ended up not being eligible, isn't really penalized for the $12,000 (ie, need to pay a $12,000 "fee") but, instead, the savings they were hoping for just didn't materialize (ie, they now need to pay the un-discounted price they would have paid without the subsidy). This is the same as when I was hoping to get some tax credits by installing solar or expecting to pay no interest on cashing out savings bonds to use for a dependent's college expenses, then later found out our income made us ineligible. I planned many years for the tax-free interest from the savings bonds, but sometimes, something unexpected or unplanned gets in your way.

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Re: Falling off the ACA subsidy cliff

Post by libralibra » Thu Nov 01, 2018 7:12 pm

post removed
Last edited by libralibra on Mon May 27, 2019 11:13 pm, edited 1 time in total.

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MP123
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Re: Falling off the ACA subsidy cliff

Post by MP123 » Thu Nov 01, 2018 10:15 pm

libralibra wrote:
Thu Nov 01, 2018 7:12 pm
Whoever voted for the cliff were insane (IMO). So you could earn $1 and lose $12,000+?? Most things in the tax code have phaseouts, e.g. a 4-1 ramp down would make more sense.
You could earn one extra $1 and lose $25k+ if you go over the cliff and are older or have a family.

To be fair though the subsidies (premium tax credits) do phase out gradually over a range of 100%-400% of the federal poverty level. In many states (medicaid expansion states) the range is 138%-400% with state medicaid picking up the low end. For a couple that's roughly $15-65k. It's just that the gradual phaseout goes to zero right over the "cliff" and insurance premiums are absurdly high.

Perhaps some future tinkering with the phaseout range might help but we can't go into that here.

In any case stay under the cliff if you can.

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Re: Falling off the ACA subsidy cliff

Post by michaeljc70 » Fri Nov 02, 2018 7:10 am

The rules are well known and have been established for years now. Just because people waited until late in the year to start thinking about them doesn't mean they should or will be changed. :oops: They work just like a lot of other tax code phaseouts that we don't use the dramatic term "cliff" on.

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FiveK
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Re: Falling off the ACA subsidy cliff

Post by FiveK » Fri Nov 02, 2018 9:28 am

michaeljc70 wrote:
Fri Nov 02, 2018 7:10 am
They work just like a lot of other tax code phaseouts that we don't use the dramatic term "cliff" on.
There are phaseouts in which a benefit decreases at some rate, usually (always?) at less than $1 per $1 of some income. Examples include IRA deductibility vs. MAGI for that benefit.

There are cliffs at which a benefit takes a step change of much greater than $1 per $1 of some income. Examples include the earned income credit vs. investment income.

The ACA premium tax credit has both phaseout and cliff components.

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Re: Falling off the ACA subsidy cliff

Post by dodecahedron » Fri Nov 02, 2018 10:56 am

FiveK wrote:
Fri Nov 02, 2018 9:28 am
michaeljc70 wrote:
Fri Nov 02, 2018 7:10 am
They work just like a lot of other tax code phaseouts that we don't use the dramatic term "cliff" on.
There are phaseouts in which a benefit decreases at some rate, usually (always?) at less than $1 per $1 of some income. Examples include IRA deductibility vs. MAGI for that benefit.

There are cliffs at which a benefit takes a step change of much greater than $1 per $1 of some income. Examples include the earned income credit vs. investment income.

The ACA premium tax credit has both phaseout and cliff components.
5K has done a good job of describing and illustrating the BIG difference between phaseouts and cliffs.
michaeljc70 wrote:
Fri Nov 02, 2018 7:10 am
The rules are well known and have been established for years now. Just because people waited until late in the year to start thinking about them doesn't mean they should or will be changed. :oops:
Sometimes a cliff can be a big surprise that can sneak up on you without warning (e.g., some folks unexpectedly lose a family member from their ¨ACA tax household,¨ e.g., if a college student who was expected to be your dependent drops out of college and starts working and/or gets married or moves in with the other parent so they are no longer your dependent, which means you are now facing income limits based on a smaller household size than you originally expected.)

VITA site coordinators see a number of situations like this. A family applied for ACA coverage in Nov before the tax year started and received Advanced Premium Tax Credits based on the family´s predicted size. Then stuff happens. The rules for figuring out who is a dependent (especially if dependent children are bouncing around among different family members´ homes throughout the tax year) can make it very dicey to be sure of your ACA tax household size. I have personally seen many folks get blindsided by the ACA ¨rules¨.

The rules are exceptionally confusing and not at all ¨well-known¨ to many of the people they affect, particularly those with complex family situations, with various members getting and losing jobs and eligibility for other forms of coverage.

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Re: Falling off the ACA subsidy cliff

Post by michaeljc70 » Fri Nov 02, 2018 12:10 pm

dodecahedron wrote:
Fri Nov 02, 2018 10:56 am
FiveK wrote:
Fri Nov 02, 2018 9:28 am
michaeljc70 wrote:
Fri Nov 02, 2018 7:10 am
They work just like a lot of other tax code phaseouts that we don't use the dramatic term "cliff" on.
There are phaseouts in which a benefit decreases at some rate, usually (always?) at less than $1 per $1 of some income. Examples include IRA deductibility vs. MAGI for that benefit.

There are cliffs at which a benefit takes a step change of much greater than $1 per $1 of some income. Examples include the earned income credit vs. investment income.

The ACA premium tax credit has both phaseout and cliff components.
5K has done a good job of describing and illustrating the BIG difference between phaseouts and cliffs.
michaeljc70 wrote:
Fri Nov 02, 2018 7:10 am
The rules are well known and have been established for years now. Just because people waited until late in the year to start thinking about them doesn't mean they should or will be changed. :oops:
Sometimes a cliff can be a big surprise that can sneak up on you without warning (e.g., some folks unexpectedly lose a family member from their ¨ACA tax household,¨ e.g., if a college student who was expected to be your dependent drops out of college and starts working and/or gets married or moves in with the other parent so they are no longer your dependent, which means you are now facing income limits based on a smaller household size than you originally expected.)

VITA site coordinators see a number of situations like this. A family applied for ACA coverage in Nov before the tax year started and received Advanced Premium Tax Credits based on the family´s predicted size. Then stuff happens. The rules for figuring out who is a dependent (especially if dependent children are bouncing around among different family members´ homes throughout the tax year) can make it very dicey to be sure of your ACA tax household size. I have personally seen many folks get blindsided by the ACA ¨rules¨.

The rules are exceptionally confusing and not at all ¨well-known¨ to many of the people they affect, particularly those with complex family situations, with various members getting and losing jobs and eligibility for other forms of coverage.
There are things you can plan for and control and things you cannot. Obviously a family member dying suddenly is something you cannot plan for. Only about 3% of the US population is on the exchanges and some of the cases you are describing are not very common on top of that.

I will probably be over the limit this year. Sometimes it just happens. Though I tried to control income, even using some of the "tricks" I'll probably be over by a few thousand bucks.

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