ACA "Doughnut Hole"

[Burke]

Who dreamed up this scenario? TP qualified on MP for subsidy using income over 100% of poverty level (based on last year's tax return.) Actual 2014 income is under 100% of poverty level. BUT, too much for Medicaid as Virginia is one of the states that did not expand their coverage. So TP is out in the cold, has to pay back subsidy and can't get any govt-benefit. Big article in the local paper yesterday highlighting this same situation for a local worker.

[TaxGuyBill]

has to pay back subsidy

Not true. If the received the Advance Premium Tax Credit, the taxpayer is not disqualified if his income falls below 100% of the FPL.


(6) Special rule for taxpayers with household income below 100 percent of the Federal poverty line for the taxable year. A taxpayer (other than a taxpayer described in paragraph (b)(5) of this section) whose household income for a taxable year is less than 100 percent of the Federal poverty line for the taxpayer's family size is treated as an applicable taxpayer if—
(i) The taxpayer or a family member enrolls in a qualified health plan through an Exchange;
(ii) An Exchange estimates at the time of enrollment that the taxpayer's household income will be between 100 and 400 percent of the Federal poverty line for the taxable year;
(iii) Advance credit payments are authorized and paid for one or more months during the taxable year; and
(iv) The taxpayer would be an applicable taxpayer if the taxpayer's household income for the taxable year was between 100 and 400 percent of the Federal poverty line for the taxpayer's family size.

http://www.law.cornell.edu/cfr/text/26/1.36B-2#b_6

[David1980]

Who dreamed up this scenario? TP qualified on MP for subsidy using income over 100% of poverty level (based on last year's tax return.) Actual 2014 income is under 100% of poverty level. BUT, too much for Medicaid as Virginia is one of the states that did not expand their coverage. So TP is out in the cold, has to pay back subsidy and can't get any govt-benefit. Big article in the local paper yesterday highlighting this same situation for a local worker.

I don't think anyone dreamed that one up, it's rather just how it played out. Originally the law as written would have tied existing Medicaid funding to the state expanding Medicaid to cover up to 133% of FPL (which really amounts to 138% due to the calc.) Those that fall into the doughnut hole would have been covered by expanded Medicaid coverage because it'd be insane for any state to give up their existing Medicaid funding.

The states sued and that part of the law got removed. So the states were able to keep existing Medicaid funding even if they didn't expand Medicaid.

To fix it, congress would need to pass new legislation. That obviously didn't happen, and isn't likely to happen. At least not anytime soon.

[ttbtaxes]

Wasn't there a "scheme" where people applied for the maximum subsidy, knowing they would have a higher income at year's end, but knew there was a cap on the on pay back amount as long as it didn't exceed the 400% amount? So, the credit you got if you never applied was less than the net amount if you applied and then repaid the ceiling cap?

[TaxGuyBill]

Wasn't there a "scheme" where people applied for the maximum subsidy, knowing they would have a higher income at year's end, but knew there was a cap on the on pay back amount as long as it didn't exceed the 400% amount? So, the credit you got if you never applied was less than the net amount if you applied and then repaid the ceiling cap?

Probably. However, if the person "knowingly and willfully provides false information" on the Healthcare application, they could be subject to a $250,000 penalty for each occurrence.

http://www.ecfr.gov/cgi-bin/retrieveECFR?gp=1&SID=8c20a02d5a87f83e3555a2fbde1df89b&ty=HTML&h=L&r=PART&n=pt45.1.155#se45.1.155_1285

[Justataxguy]

Not true. If the received the Advance Premium Tax Credit, the taxpayer is not disqualified if his income falls below 100% of the FPL.


(6) Special rule for taxpayers with household income below 100 percent of the Federal poverty line for the taxable year. A taxpayer (other than a taxpayer described in paragraph (b)(5) of this section) whose household income for a taxable year is less than 100 percent of the Federal poverty line for the taxpayer's family size is treated as an applicable taxpayer if—
(i) The taxpayer or a family member enrolls in a qualified health plan through an Exchange;
(ii) An Exchange estimates at the time of enrollment that the taxpayer's household income will be between 100 and 400 percent of the Federal poverty line for the taxable year;
(iii) Advance credit payments are authorized and paid for one or more months during the taxable year; and
(iv) The taxpayer would be an applicable taxpayer if the taxpayer's household income for the taxable year was between 100 and 400 percent of the Federal poverty line for the taxpayer's family size.

http://www.law.cornell.edu/cfr/text/26/1.36B-2#b_6

That's right. I had one that fit this description and they actually got a refund of the PTC as their income came in lower than estimated. Theirs was one of the easiest ACA nightmares so far.

[Burke]

Then I am not doing something right, as 8962 is showing it as a payback, and it is flowing to 1040. So what is the trick? PS: As mentioned by TaxGuyBill, it is being capped at $300, showing maximum amt to be paid (Credit was more than that) but it still is showing up. If I show more income just playing around, then the cap goes to $750.

[David1980]

Then I am not doing something right, as 8962 is showing it as a payback, and it is flowing to 1040. So what is the trick? PS: As mentioned by TaxGuyBill, it is being capped at $300, showing maximum amt to be paid (Credit was more than that) but it still is showing up. If I show more income just playing around, then the cap goes to $750.

Yes, it does seem rather odd that someone would have received too much subsidy when their income ends up falling below 100% of poverty level. Possibly an interaction with a change in number of exemptions? On the 8962, how much is line 8a/8b? From the 1095-A, how much in columns A, B, C?

For example, if 8a was $1,200 which makes 8b $100 and the monthly amounts on 1095-A are $200 monthly premium amount, $275 SLCSP, $190 monthly advance of PTC, we would expect a repayment of $15 per month. The math on that being $275 SLCSP less $100 monthly contribution amount = $175 and the advance was $190. So $15 too much per month.

[Burke]

Well, I think I have figured it out by going line-by-line, and referring to the instructions for completion of each line. I was getting incorrect information BECAUSE Line 20-23E was not auto-populating in my software. The form says Column E is the "smaller of A or D." Simple enough, but if columns A and D have figures in them, then Column E should be calculating without input from me, IMO! Once I manually completed all those lines, the TP actually got a credit for $16. No repayment. I wonder how many others have gotten incorrect figures and not questioned the result. I will be having a heart-to-heart with my software people. Thanks for all the help and explanations. At least I was on the right track.

[TaxGuyBill]

I was getting incorrect information BECAUSE Line 20-23E was not auto-populating in my software.

Out of curiosity, what software do you use?

[Burke]

ATX. I am happy with it so far. This is the first issue I have encountered, and it is a new form for 2014. They want to see the return before determining if it is a problem.