Author Topic: How is a serious underestimate of MAGI for ACA handled ?  (Read 2576 times)

Spot

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How is a serious underestimate of MAGI for ACA handled ?
« on: August 19, 2019, 03:51:57 PM »
We seriously overestimated our ability to generate income for tax year 2019 when applying for ACA in November last year. As a result, we will be several thousand dollars below 100 percent Federal Poverty Level when doing our taxes next year.

There is no penalty for being under the estimated MAGI and Florida does not enforce Medicaid/Medicare for families below 100% poverty level.

In fact, had we known what we now know about our income for 2019, we would not even have qualified for Blue Cross Silver plan or any plan at our projected total income.

As I now see it, likely there will be no problem come November 2019 to enroll for ACA for 2020 and we should have enough income in 2020 just in case evidence to support MAGI next year is requested.

But what about 2019 -- how and what may occur with a seriously low income this year and the subsidy we have received based on overestimating our MAGI ?

gocurrycracker

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Re: How is a serious underestimate of MAGI for ACA handled ?
« Reply #1 on: August 27, 2019, 09:03:41 PM »
Hi Spot

It looks like you have a handle on the 2020 stuff.

For 2019, technically you are supposed to report a change in expected income and would thus be bumped off the silver plan and pushed to medicaid. If you don't do this, there is no penalty or repercussions that I am aware of. At tax time, you might have to repay up to $600 of the PTC (PTC repayment is limited.) This clawback may not be enforced at low income, but TBD.

Since you will be enrolling for 2020 ACA coverage in Nov 2019 and not filing taxes until April 2020, you will just self-report expected 2020 income and enrollment will go smoothly. Most likely. If proof of income is requested and you can't provide it, you will probably be enrolled in Medicare until you can do so. Sounds like that won't be an issue.

One option you could pursue (if possible) is to do a Roth conversion or harvest capital gains before end of year to bump income for 2019 to 138%+ FPL. This would eliminate the gray area as you fully qualify for ACA and PTC at that point. This would mean zero PTC clawback and a good long-term financial choice in any case for a low-income year. (Zero FL income tax, no ACA subsidy penalty, and no Fed tax for MFJ with <$24k income.)

Disclaimer: I've not been through this myself so this is just how I read things. Note the regular usage of words like probably and maybe.

avasilakis

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Re: How is a serious underestimate of MAGI for ACA handled ?
« Reply #2 on: January 01, 2020, 06:42:07 AM »
Hello,
Really enjoyed your "treatise" Obamacare optimization vs Tax optimization.  It was written in 2015. Any chance for an update to the article especially the graphs to reflect the recent overhaul of the tax code by the Tax Cut and Jobs act? Thanks for your consideration. Your original article is a one of a kind source balancing those two subjects.

gocurrycracker

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Re: How is a serious underestimate of MAGI for ACA handled ?
« Reply #3 on: January 02, 2020, 07:49:48 PM »
Hello,
Any chance for an update to the article especially the graphs to reflect the recent overhaul of the tax code by the Tax Cut and Jobs act?

Yes, it needs to be updated, although the principles are unchanged by the TCJA (except maybe for households with 3+ kids.) It is on my To Do list...

In the mean time, check out my ACA subsidy / premium calculator?
https://www.gocurrycracker.com/aca-premium-calculator/