ACA scenario: Medicaid poverty level, non-dependent covered, PTC alloc optimization

[Rapid Robert]

TaxGuyBill, I hope you're still logged in and feeling generous, my search shows a lot of solid comments by you on this topic, among other contributors.

One client is MFJ parents, both self employed and no taxable income, due in part to large capital loss carryovers that offset their investment income. Other client is 24-yr old child who is full time graduate student with about $3.5k wage income, some non-taxable scholarship, and lots of education expenses. If parents tell me they provide half or less of support, I'm going to have a good faith reliance on that and treat him as not able to be claimed as a dependent.

Parents received 1095-A form including child as a covered person.

Q1: per what I've read, by allocating 100% of PTC to child, they will net a larger overall PTC due to child's lower income (28% percent of poverty level vs. over 100% for parents). Correct?

Q2: having less than 100% (or 138% in Medicare expansion states) of poverty level income does not automatically force a repayment of APTC. Correct?

Q3: for parents, they want to continue coverage through the ACA exchange, not Medicare. If AGI puts them below 138% of poverty level, they are at risk of being forced onto Medicare? (not a tax question) Can they simply choose to not adjust for Self Employed Long Term Care insurance premiums on front of Form 1040? Maybe because the insurance plan is not in the name of either of their Schedule C businesses? By omitting this adjustment, their AGI stays above the poverty level but still triggers no income tax. They tried to do a Roth conversion right at the end of the year to generate more income but it looks like it wasn't recorded until 2018.

[TaxGuyBill]

1) Yes. This does fit into a "gray area" because the child was not approved for Advance credit (and has income under 100% of FPL), which could hypothetically not allow the Premium Tax Credit (see §1.36B-2(b)(6)). However, I have never heard of the IRS pressing that issue, so I would go ahead and claim it on the child's tax return. In very unlikely event the IRS makes a ruling on that and decides to retroactively press the issue, you could always amend to put it on the parents' tax return.

2) Correct, but because child's income is under 100% of the FPL, see my long-winded note in #1.

3a) Yes, it could possibly 'force' them into Medicaid, but it shouldn't. When they apply for 2019 insurance, it is based on the estimated 2019 income. They will ask for his estimated 2019 income, and then look at his 2017 tax return to verify the 2019 estimate is legitimate. When the Marketplace first started, I read stories where the 'forced' the insurance based on the prior tax return's income, but recently I've read that if they question the estimate, you can send "proof" of the estimated income (such as Roth conversions).

3b) I would claim all legitimate deductions on the tax return. As I mentioned, the Marketplace SHOULD look at the estimated 2019 income for health insurance. Intentionally manipulating AGI for health insurance purposes COULD be problematic.

3c) Even if the Marketplace pushes Medicaid, how problematic would that be? Otherwise, would they be able to temporarily pay the FULL cost of health insurance? If so, i think they could not enter income at all for the Marketplace application (and therefore pay full cost), then claim the full Premium Tax Credit on their tax return (assuming their income is over 100%, and they otherwise qualify).

[Rapid Robert]

Thank you for the responses, which will greatly help my discussion with this client family.