ACA PTC penalty change in circumstances

[kembleco]

T/P has employer coverage 1st 6 months of the year, loses job and acquires insurance in Marketplace for the last 6 months. She gets a high subsidy since only income is now unemployment. The 8962 calculates the MAGI based on full year so the entire subsidy is disallowed due to MAGI being in excess of 401% of poverty for the annual period. I think there is an alternative short period calculation to reflect the circumstances of the subsidy period but cannot find any place to make the calc.

Any help will be appreciated.

Peter Kemble, EA

[TaxGuyBill]

Nope, it is only based on the annual income. When the taxpayer signed up, they should have told the Marketplace their estimated Annual income, not their current monthly income.

The only partial-year option is if the taxpayer got married during the year. Even with that option, it often does not reduce the repayment.

If the taxpayer is married, you may want to test out if Married Filing Separately would work out better. If often will reduce the repayment.

In the event the taxpayer was self-employed during the year, contributing to a SEP could help if it would get the income down to 399%.

[Snaggletooth]

Agree with the Tax Guy

I agree. The most prolific example was a client who lost his high-income job in April, and got another 90 days of severance pay added to his W-2.

For the remainder of the year, he drew no unemployment until his severance pay ran out, and there was no other income. His subsidy on the exchange was $1600 and he lost every bit of it when I prepared his return.

[Rapid Robert]

It's not a penalty, I don't know why a tax professional would call it that. It's a repayment of an advance payment that was overestimated. Big difference.

[Snaggletooth]

Great Observation

Very strongly agree with the content of Robert's observation. The public is so engrained to the concept of "penalties" associated with Obamacare, and I don't think we will ever educate them to the difference.

We should not let this huge public misconception drift into the thought process of practitioners.