My wife finally came off ACA at the end of Feb 2021. Since we had gotten married the prior year, she was no longer getting the tax credit (long story). So for the first 2 months (before going on Medicare) she paid the premiums but did not get any advance tax credit. Shea letter and a 1095-A from the Healthcare Marketplace that shows only the 2 figures for Jan and Feb premium payment.
Also, the letter states that a tax return must be filed if the 1095-A shows that she got any advance payments of the premium tax credit.
Since the 2 months premiums are over $1800, we are going to include them to get the medical deduction, and the result is the same if I fill out the 1095-A forms or just add the $1800+ to our medical deductions. I use Turbo tax and they agreed with the documentation we got and said the just adding it to the medical deduction was fine and eliminate some paperwork.
The question I have is regarding filing status. Since we were married for last years return and since she did get tax credit the IRS states that we had to file a Joint Return. This year, since there is no credit and evidently we don’t have to file the 1095, I have been trying to find out if we can file a Married filing Separate return. Of course, Turbo Tax asks if we have a 1095 even though there are no credits. I guess they want me to say no I don’t have a 1095-A to avoid doing the extra forms. Since her income is much lower than mine and since she received a fair Capital Gain from an estate, I would like to try to do the returns separate since I think she will have a much better tax treatment. I have almost everything else done with our Joint Return and I wanted to see if this could be done before I venture off into 2 more returns. No help from Turbo Tax or the never answer IRS line.
The question I have is regarding filing status. Since we were married for last years return and since she did get tax credit the IRS states that we had to file a Joint Return. This year, since there is no credit and evidently we don’t have to file the 1095, I have been trying to find out if we can file a Married filing Separate return.
Yes, you are allowed to file MFS. It rarely benefits you, especially if either of you have made direct contributions to a Roth IRA, since the Roth income limit for MFS is $10,000 - and no, I didn’t miss a zero. If you are already doing back door Roth contributions, then the income limit isn’t an issue. But, you will need to realize that your tax brackets for MFS are basically half of what the MFJ rates are - so the higher income earner will probably end up in a higher bracket than the MFJ bracket would be - possibly much higher.
Since her income is much lower than mine and since she received a fair Capital Gain from an estate, I would like to try to do the returns separate since I think she will have a much better tax treatment. I have almost everything else done with our Joint Return and I wanted to see if this could be done before I venture off into 2 more returns.
Go ahead and try it with 2 separate returns. If you have made direct Roth IRA contributions and find that it would be beneficial to file MFS, you will need to correct any excess contributions, or pay a tax on the excess contributions.
No Roth contributions. No earned income, just 2 pensions, SS, some Rental Income, and dividends.
I was just concerned with the ACA stuff since it’s hard to get any answers, and when she got credit the previous year we had to file joint since they want to see the combined income.
The main reason I wanted to try the MFS was due to a $25K capital gain that my wife received. You’re probably right about the end result, but I’ll give it a shot.
I was just concerned with the ACA stuff since it’s hard to get any answers, and when she got credit the previous year we had to file joint since they want to see the combined income.
Well, you could have filed MFS for 2020, too, but as MFS, she still would have had to pay back any advance Premium Tax Credits (PTC) she’d received. That’s because those who are MFS are ineligible for the PTC unless you had lived apart for the entire year, she was a victim of domestic abuse, or she was a victim of spousal abandonment. (I’m assuming that none of these applies to you and your wife.) See pg 7 of IRS Pub 974 https://www.irs.gov/pub/irs-pdf/p974.pdf for details. Congress was very clear that for anyone who is considered married at the end of the year (even if you only get married on Dec 31), the PTC is contingent on the joint income for that year, with those very limited exceptions.
I will point out that for 2020 and 2021, the American Rescue Plan limited ACA premiums to 8.5% of your joint income. Any excess was to be refunded as a subsidy. Since she was only covered for 2 months in 2021, that probably won’t help for your 2021 filing, but it may have helped in 2020. Because the American Rescue Plan wasn’t passed until March, 2021, the change for 2020 was retroactive. So, if you filed early, you may want to go back and check your return to see if you are now eligible for a subsidy for 2020.
The main reason I wanted to try the MFS was due to a $25K capital gain that my wife received. You’re probably right about the end result, but I’ll give it a shot.
With a $25k capital gain alone, SS income that she receives will be considered taxable, so that probably won’t be beneficial. Depending on her other taxable income, some/all of the capital gain may be taxed at 0% That said - even with your joint income, some/all of the capital gain may still be taxed at 0%, since the income brackets for capital gains are doubled for MFJ compared to MFS. So running both sets of returns (one MFJ and 2 MFS) is probably the only way that you will be able to see which way is better for you financially.