We have relatively significant assets, and low income. We would like to stay out of the Medicaid system, for what I think are rational reasons.
I'd just like to confirm a few things I think are true:
(1) There is no penalty if the income reported on your tax return is less than what you estimated for that year on the health care exchange application?
(2) Even in such a case, you could again estimate a higher income the following year.
(3) If you did need to raise your reported income, IRA distributions count as part of MAGI.
I am not sure this answers all your questions but....
If you signed up for health insurance from an exchange for 2014, you provided an estimate of your income. Your monthly health insurance premium was subsidized by an advance payment (an advance of the Premium Tax Credit) that reduced the amount you had to pay for the insurance. When you file your return, there are 3 possible outcomes. Your actual MAGI falls into the same range of your estimate and there is no effect. Your income is higher then the range of your estimate and you must pay back some of the advanced payment. Your income is lower then the range of your estimate and you are entitled to a refund.
You will be required to provide an estimate of your 2015 income in order to buy insurance on an exchange. Your 2015 estimate can be lower, the same or higher than 2014. This estimate plus the other variables will determine the amount of any advance payment for 2015. 2015 is independent of 2014.
MAGI includes the taxable amount of all retirement plan distributions. This includes traditional IRAs. If your only retirement distribution was tax-free income from a Roth IRA, none of that income would count in MAGI for purposes of your advance payment.
I just went through this for 2014 using the Federal Exchange because Texas does not have their own exchange. If your income is too low, the web site won't let you sign up and tells you to apply for medicaid. I assume the state exchanges use the same procedure.
In the case I was working on, the income (from self employment) estimate was a shade too low to be eligible for the health insurance and instead the person would have to go on Medicaid. We increased the estimate a couple of percent so the person would be eligible for the insurance and this gave the person the maximum subsidy available. If the actual income comes in below the estimate, I don't believe there will be any refund because the person is getting the maximum subsidy.
1) If the 'penalty' you are concerned about is the possibility that your income will end up so low that you are totally disqualified from any Premium Tax Credit when you file your 2014 tax return, yes that is a possibility. The ACA limits the PTC to families/individuals with income in the range of 100% to 400% of the applicable Federal Poverty level. You may still qualify for the PTC if your income falls below
100% of FPL but you have to meet some additional requirements. From the Draft 2014 Form 8962 Instructions: "You qualify for the PTC even if your household income is less than
100% of the Federal poverty line if you meet all of the following requirements.
- You or an individual in your tax family enrolled in a qualified health plan through a Marketplace.
- The Marketplace estimated at the time of your enrollment that your household income would be between 100% and 400% of the Federal poverty line for your family size for 2014.
- APTC is paid for the coverage for one or more months during
2014. ....... " As a practical matter, most people who have income that ends up below 100% of FPL will still qualify for the PTC. If an asset rich, income poor person chose to forgo the Advance Premium Tax Credit (APTC) during the year (or for some other reason didn't get any APTC) and planned to collect the tax credit when filing their tax return and ended up with income below
100% of FPL, they wouldn't qualify for the PTC when they filed.
2) Yes. You can estimate a higher income for the following year. If you do this expecting the estimate to be inacurate in order to qualify for a tax benefit that you would not otherwise qualify for, I can envision potential problems. If you consistently estimate income over the FPL and report income below the FPL (and collect the PTC every year) you may eventually draw the attention of the IRS computers.
3) Yes.
The only person I know in your situation decided to take an IRA distribution to get MAGI to 100% of FPL.
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