Health Care

Health Care

How do health care reform and taxes connect? The Affordable Care Act is single largest change to the tax code in two decades. Find help navigating the complexities of the new health care legislation, Medicare, Medicaid and other medical deductions.

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Pioneer
Posts: 1
Registered: ‎04-12-2015

Lump-sum back SS Disability Payment and Health Insurance Marketplace Credits

I was granted permanent disability in December of 2012 and received my first disability check in July of 2013. At the time, I purchased a low-cost private health insurance policy. Last February I signed up for Health Insurance through the Marketplace. I was told I had to, as my private policy was no longer available. I projected my income according to the monthly SS Disability payments I was receiving. In October of last year (2014) I received a lump-sum payment representing back disability from 2011 and 2012. When I used your on-line service to file my taxes, I was told I would need to pay $3,949. (This represents over 20% of my annual income.) I calculate this to be ALL my premium credits plus a $70 penalty. I did not know if I was going to get back disability, when it would be paid, or how much it would be. Am I missing something here or are my worst nightmares a reality?

Tax Pro
Posts: 1,424
Registered: ‎09-04-2014

Re: Lump-sum back SS Disability Payment and Health Insurance Marketplace Credits

[ Edited ]
It is possible when you filed your return that you taxed more of the lump sum than you needed too.
It sounds like they paid you for2011, 2012, 2013 and 2014. If your income was low in 2011, 2012 and 2013 you would need to calculate how much, if any would have been taxable that year. There are worksheets to be completed to see how much of this money will be taxed on your 2014 return. I would like to suggest you take your 2011, 2012, 2013 and 2014 tax returns to your nearest HRBlock office and ask for a free second look. It all of the lump sum would not be taxable the tax pro would be able to amend your return and get the overpayment back. There is a charge if the return will be amended by the tax pro. Even if it was prepared correctly the first time the second look will save you worrying about whether the original return was correct. Have a good day!
BettyB
Sr. Tax Analyst
Associate (Council Member)
Posts: 2,518
Registered: ‎12-17-2012

Re: Lump-sum back SS Disability Payment and Health Insurance Marketplace Credits

Willow22,

 

Welcome to the Community. I shared your question with an associate with The Tax Institute. Their feedback is below:

 

Unfortunately, because your actual household income is so much higher than projected, you will have to repay the entire amount of the advance premium tax credit.

 

When a taxpayer receives the advance premium tax credit (APTC), they will have to reconcile the amount of APTC received with the amount o APTC for which they are eligible. The amount of received APTC is derived from the projected household income and family size, and the amount of eligible APTC is based on the actual household income and family size. If there is no difference between the projected household income and family size and the actual household income and family size, the difference between the received APTC and the eligible PTC would be zero. However, if there is an increase in actual household income, it would lead to a smaller eligible PTC and thus an excess

APTC that would have to be paid back.

           

            MAGI

 

The household income for the purposes of the PTC is the modified adjusted gross income, or MAGI, which is the AGI plus:

 

  • Nontaxable social security benefits (i.e. SSDI, Social Security income, but not SSI);
  • Tax-exempt interest; and
  • Excluded foreign earned income.

 

As a result, any SSDI income you receive would be added back into your AGI to arrive at MAGI. Since you had retroactive SSDI in 2014, this would be added back into your AGI. Also, taxpayers are no longer eligible for the PTC once their MAGI becomes more than 400% of the federal poverty line (FPL). Your retroactive payment covers two years of benefits, thus your MAGI would be so large that it would disqualify you for the PTC. This is why you have to pay back the entire amount of APTC given to you. Your high MAGI also disqualifies you from taking advantage of the repayment limitations, because it is based on MAGI (household income) and the limits do not apply to those with household income of over 400% of the FPL. The excess APTC ultimately becomes an additional tax liability.

 

            Excess APTC Relief

           

However, if you expect to have problems paying the tax, relief is available and it applies to two situations:

 

  • Failure to pay entire balance by April 15 – late payment penalty abated
  • Underpayment of estimated taxes – estimated tax penalty waived

 

You can seek relief by doing the following:

 

  • Check Box A on Form 2210, Part II;
  • Completing the first part of Form 2210; and
  • To abate the late payment penalty – type in the following statement: “I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.”
  • To waive the estimated tax penalty - type in the following statement: “Received excess advance payment of the premium tax credit.”

 

In order to take advantage of the waiver, you must be current with your filing and payment obligations and report the amount of excess APTC on a 2014 tax return timely filed, including extensions.

 

I’m sorry I couldn’t give you better news.

 

JerryG


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Pioneer
Posts: 1
Registered: ‎07-08-2017

Re: Lump-sum back SS Disability Payment and Health Insurance Marketplace Credits

I got hit by this same issue.   

In Jan 2016, I was signed up for healthcare, and got subsidies.

But then, later in January, I got approved for Soc Sec Disability, and got a lump-sum payment, and,  I also got  put on medicare.

 

The following year, I got a whopping bill for taxes.   I thought it had something to do with miscalculating the lump-sum payment.

 

It didn't.   It had to do with this:  You cannot get both healthcare subsidies (obamacare) AND have medicare.

Should the goverment have notified me of that?   Yes, they should have, I think.  After all, I didn't *ask* for the medicare (although, it was nice to get it).  But, effectively, it was the government that broke their own rules:  I already had obamacare, and they themselves put me on medicare at the same time.   And then?   They let it go an entire year, and I have to pay back the whole of the subsidies.

Yeh, it stinks.  Big time.