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11-10-2017 02:56 PM
Hello. I am 36-year-old student leaving my current job to finish my nursing degree. I will be working part-time and will rely on the ACA tax credit to help cover the cost of an individual marketplace plan. Unfortunately, I live in a sate (Alabama) that has not expanded Medicaid. This means there is a Medicaid gap. I have determined I must earn at least $12,200 to qualify for an ACA tax credit. Below that, I would fall into the area that was intended to be covered by the Medicaid expansion but is not due to the state's decision not to expand Medicaid.
Being that part-time jobs available to college students are unpredictable and typically low paying and that the unpaid clinical rotations involved in my educational program are very time consuming, I am not 100 percent confident I can earn that much, which is a scary prospect. My questions are (1) will I have to repay all of the premiums if I don't make it to the $12,200 minimum, (2) is the $12,200 my gross income or my adjusted income after the deductions, and (3) will student loans count toward my income?
Thanks very much for any assistance you can provide.
11-10-2017 05:28 PM
Welcome to the H&R Block community.
(1) If your income is below 100% of the federal poverty level you will have to repay any premium tax credit that you received. The federal poverty level for an individual taxpayer with no dependents is $12,060 for 2017, and you're probably accurate on it being closer to $12,200 for 2018 since they increase it every year for inflation.
If you allow the marketplace to estimate your income for you and then you fall short there is an exception to the repayment requirement provided that income was the only thing that disqualified you.
(2) Your total income for premium tax credit purposes is equal to your adjusted gross income from Form 1040, Line 38 plus your non-taxable social security income plus your tax-exempt interest plus your excluded foreign income & housing allowance. So basically its your AGI plus all of the excludable income items that apply to you.
(3) Student loans do not count toward your income. However, if you paid more of your college expenses with student loans & cash out-of-pocket than you did with scholarships & grants you can take a tax credit for your education costs, and I'll be glad to go into detail on that topic if you would like.
If you have any other questions I'll be glad to help.
Senior Tax Advisor (Tampa, FL)
11-10-2017 07:06 PM
Thank you for your prompt and very clear answer. I do anticipate paying virtually all of my expenses with student loans. And would be interested in learning more about that tax credit. I also have another question about income. While it is not my preference due to the penalties, if I drew money out of my 401K in 2018 would that count as income that I could use to push me over the top in terms of reaching the $12,200?
11-11-2017 01:30 AM
You're quite welcome.
Yes, 401(K) distributions are taxable income to you in the year that they are withdrawn and they count. If you withdrawl money from your 401(K) over a minimum of five years in equal amounts then you'll qualify for "equal payments" exception to the 10% penalty.
There are 2 education credits including (1) the American Opportunity Credit, and (2) the Lifetime Learning Credit. You can claim one or the other but not both.
If you are in your first four years of college that you've ever completed you'll want to claim the AOC which is partially non-refundable and partially refundable. The non-refundable part is a maximum of $1,500 while the refundable part is up to $1,000. If your total student loan and out-of-pocket payments for qualifying expenses exceed your scholarships & grants by at least $4,000 you'll get the full American Opportunity Credit. Qualifying expenses include tuition, fees, and textbooks.
The Lifetime Learning Credit works in much the same way as the AOC for qualifications except that you can claim it for any year that you're in school, not just the first four. Unlike the AOC you can also claim the LLC if you're taking work-related courses. Also, textbooks are a qualifying expense but for the LLC they must be purchased directly from your educational institution. The LLC is worth $2,000 non-refundable credit and is calculated as 20% of the first $10,000 of your qualifying expenses paid with student loans or out-of-pocket that exceed your scholarships & grants. So if you have $13,000 worth of expenses that you paid and you have $5,000 in scholarships & grants then your expenses are greater by $8,000 and your credit is equal to about $1,600.
Education credits are claimed on Form 8863. Your tuition & fees amount and your scholarship & grant amount are reported to you on Form 1098-T by your educational institution but they are not always accurate so be sure that you know how to access your payment records in your student account so that you can double-check the numbers. Figuring the credits can be tricky so ask me for help if you run into any road blocks while working on this part of your tax return.