I am an early retiree currently on ACA health insurance. I turn 60 toward the end of this year, if that makes any difference. Even prior to closing my small business in 2018, I was always able to keep my modified AGI below the 400% poverty level to qualify for some subsidies.
In preparation for buying a house, I sold stock from an inherited taxable account last month. Fortunately/unfortunately there were significant capital gains which I know will be included in my modified AGI for 2022. My projected income will be over the 400% poverty level for the first time this year.
I currently have the cheapest Bronze PPO plan with a $7450 annual deductible. Full price is approximately $750 per month. I pay approximately $300 per month (based on my estimated AGI without the capital gains). My subsidy is approximately $450 per month or $5400 annually.
When I do my 2022 taxes next year, is there a way I can show February as a high income month and the rest of the year as low income months so I can qualify for the subsidies for 11 months of the year? My monthly income is currently a distribution from an inherited 401K.
To further complicate things, I am planning to get married later this year. The date is flexible – some time after I buy the house. We might push it off into 2023. My fiance is younger than I am, in his mid-50s. He is on disability (SSDI - based on his previous work history) and Medicare (not Medicaid).
Is there anything I can or should do now from a tax perspective regarding my ACA subsidies? Will getting married this year vs next year make a difference? Will the month we get married make a difference?
Should I just plan on paying back the $5400 subsidy when I file my taxes next year and adjust my quarterly estimated payments accordingly?
When I do my 2022 taxes next year, is there a way I can show February as a high income month and the rest of the year as low income months so I can qualify for the subsidies for 11 months of the year? My monthly income is currently a distribution from an inherited 401K.
No, ACA is based on annual income. That said, for 2021 and 2022, the American Rescue Plan changed the limits to get a subsidy from a max of 400% of FPL to maxing out the insurance premiums at 8.5% of income - anything above that will be subsidized. So with a $750/month insurance plan (your payment of $300 plus the subsidy of $450), unless your total income for 2022 is over $105k, you will still get some subsidy.
Will getting married this year vs next year make a difference?
It could. I will note that unless the law changes for 2023, the subsidy limit will be back to 400% of FPL, but as a household of 2, the FPL will be higher. So at least for 2023, it will probably be beneficial to be MFJ. For 2022, you should try to do a test run of your taxes both ways to see which way is more beneficial.
Will the month we get married make a difference?
No. You could get married Dec 31 and you would be considered married for the entire year.
In preparation for buying a house, I sold stock from an inherited taxable account last month. Fortunately/unfortunately there were significant capital gains which I know will be included in my modified AGI for 2022.
I will also point out that inherited accounts (as opposed to gifted accounts) generally get a step up in basis, to the value as of the date of death, rather than the original purchase amount. So be sure you are considering that when you figure your capital gains.
So with a $750/month insurance plan (your payment of $300 plus the subsidy of $450), unless your total income for 2022 is over $105k, you will still get some subsidy.
I believe subsidies (also called Advanced Premium Tax Credit or APTC for others who might be following this) are based on the cost of the Second Lowest Cost Silver Plan. For the 2021 and 2022 law change that maxes insurance premiums at 8.5% of income, is it based on the actual premium paid or is it based on the Second Lowest Cost Silver Plan?
For 2022, you should try to do a test run of your taxes both ways to see which way is more beneficial.
I agree. I will probably need to do the test run. MFJ my capital gains tax rate will be lower and it is not obvious how it will affect the subsidy. For 2023 it will be easier to keep household income below 400% of FPL than it was as a single person.
You could get married Dec 31 and you would be considered married for the entire year.
Publication 974 Premium Tax Credit (PTC) has a section entitled “Alternative Calculation for Year of Marriage” that appears to allow you to do some calculations based on the month of marriage that may reduce excess APTC. It looks like something else I will have to trial run.
Is a spouse on Medicare treated similar to someone whose employer does not offer spousal health insurance or are there different rules for ACA when the partner is on Medicare?
Is a spouse on Medicare treated similar to someone whose employer does not offer spousal health insurance or are there different rules for ACA when the partner is on Medicare?
She can obtain ACA. Subsidizes depend on household income.
Q. I am on Medicare and Social Security, my wife recently became self-employed and needs health insurance from the state exchange, as she’s not yet old enough to qualify for Medicare. How do we figure our household income? Does my social security count toward household income, even though I will not be buying insurance?
A. For the purpose of determining subsidy eligibility, the IRS and the health insurance exchanges use an ACA-specific version of modified adjusted gross income (MAGI). MAGI is based on household income, even if only one spouse is applying for a policy in the exchange.
Keep in mind that subsidy eligibility is a function of income related to the poverty level. Although your total household income is obviously higher than your wife’s income alone, the poverty level for a household of two is also higher than the poverty level for a household of one. So while your income is counted when determining whether she’ll qualify for a subsidy, you’re also counted as part of the household when determining how the household’s income compares with the poverty level.
I will also point out that inherited accounts (as opposed to gifted accounts) generally get a step up in basis, to the value as of the date of death, rather than the original purchase amount.
My father passed in January 2021. Due to delays in getting the death certificate (thanks Covid!) and TD Ameritrade not releasing any of the money to us until all 4 of us siblings had created accounts and provided documentation, the inherited taxable stock accounts were not funded until July. There were significant capital gains in that time and much fewer losses (I sold all of those too to try to offset the gains.) The account was heavily weighted in some individual stocks of companies for which my father and grandfather had worked, so selling to diversify was a good idea anyway.
Selling the stocks now allows me to pay cash for the house before I get married. I was badly burned in divorce many years ago and never thought I would get remarried. Buying the house with cash in my name only before marriage gives me some protection if things go south. I can add his name to the title after we get married so he will inherit, but in our state it will be considered a premarital asset if the marriage is legally terminated.
You might what to verify that his SSDI won’t be affected by your marriage. I don’t know the details but remarriage before 60 can cause of survivor benefits or benefits based on an ex-spouse.
I took a cursory look at IRS Pub 974 Premium Tax Credit (PTC). The Alternative Calculation for Year of Marriage section allows you to calculate payback of the Advanced Premium Tax Credit (APTC – the subsidy) in 2 ways in the year you are married.
First way is the obvious one – You can calculate the total household MAGI and divide by 2 to use as the MAGI for the person on ACA.
Second way – The alternative allows you to split the year. In the months before marriage, you use the single MAGI, ignoring the spouse’s income. For the months after marriage you use the total household MAGI divided by 2. (I am oversimplifying this a little because you also take family size into account if there are dependent children.)
Which means – If my husband-to-be makes more than I do, it would be to my financial advantage (for purpose of calculating the subsidy) to get married as late in the year as possible and use the alternative calculation. If he makes less than I do, the month of the marriage won’t matter because the total household MAGI divided by 2 would give the lower MAGI for purposes of calculating the subsidy.
My plan for now – My plan will be to pay extra estimated quarterly tax to cover the subsidy based solely on my single projected income, in case I don’t get married this year. That is potentially better than reporting a change in income and adjusting my premium payments now, because the IRS limits the amount of excess APTC you must pay back.
If I do get married this year, our projected married total household MAGI divided by 2 is low enough that I am still eligible for some subsidy. I can also reduce any remaining estimated quarterly tax payments after the marriage.
You might what to verify that his SSDI won’t be affected by your marriage.
Thanks vkg
We have been researching this. I think we have it figured out. Husband-to-be has SSDI and not SSI. SSI is income and asset-based and would be affected by marriage. SSDI payments are based on his work history and past earnings. He is also collecting employer-based LTD which uses a formula to supplement the SSDI.
Thank you for mentioning survivor benefits related to remarriage before age 60. That is something else for us to investigate. My ex-husband is deceased so there is no issue on my side. My husband-to-be earned more than his ex-wife, but the ex-wife has remarried someone with a higher income. I think we’re OK on this.