I qualified for and received an ACA insurance tax credit of over $500 a month from January through July 2018, as my sole household income was...

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I qualified for and received an ACA insurance tax credit of over $500 a month from January through July 2018, as my sole household income was Social Security. In August I went on Medicare and reported my change of status to the Healthcare Marketplace. In November, I took a distribution from my IRA of $25,000 for home repairs plus the amount necessary to pay the federal and state income taxes on that money, and paid that money to the taxing authorities at that time. Now, doing my taxes, the software says I owe about $2,600 to the feds (I don’t know what I’ll owe to the state yet), although the software said I was getting about $1,400 refund before I input the health insurance numbers. Can you tell me what’s going on here?

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Victor Santucci EA
Tax Preparer

Hello and welcome to ExpertHelp.com! My name is Victor Santucci EA and I'm going to do everything in my power to answer your question to your full satisfaction!

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Victor Santucci EA
Tax Preparer


Not having all your tax information I would say you probably under estimated your Income when you file for the ACA Subsidy.

You aren't the only one who underestimated your income last year and received a subsidy. For many, it's hard to know when a new job will come or what income will look like next year. The government isn't going to come after you, but you will have to pay back at least some of the subsidy on your taxes.  

If you’re off just a bit, it shouldn’t make that much difference. But if you lowball it by a bundle, you could end up having to pay back most or all of those subsidies.

Here’s how it works: If you go to healthcare.gov beginning November 1st to shop for a policy, you’ll be asked to submit your estimated “modified adjusted gross income” (MAGI).

For most people, MAGI will be their estimated wages, interest and dividend income — generally, all taxable income. It also includes non-taxable Social Security benefits and some pension and annuity payments.

That MAGI amount will help determine if you’re eligible for a subsidy and how much that subsidy will be. For those on the lower-income scales, the subsidy could be substantial.

You’re pretty much on the honor system when it comes to reporting your MAGI.

However, the estimated income you claim will be checked against your actual income when you file your federal income tax return. If you earned more than you estimated, and you got a subsidy for your health insurance, you have to pay back some of the subsidy.

The maximum amount of payback is tied to your actual income. If you earn anywhere from 100% to 199% percent of the federal poverty level, your maximum payback is $300 for an individual and $600 for a family.

The maximum payback rises gradually to $1,250 for an individual and $2,500 for a family for those earning 300 percent to 399 percent of the poverty level, and, for those at 400 percent of poverty and higher, you must pay back all of the overpayment.

So, if you estimate your income at a lowly $18,000 and thus get a substantial subsidy to offset your insurance policy, and you get a much better job or have a big capital gains and your income soars — be prepared pay back that subsidy.

What you overpay or underpay is reconciled at tax time when you file your tax return.

 Victor Santucci  EA

Victor Santucci EA
Tax Preparer


Do you need further assistance with your original question?

Victor Santucci  EA


I’m very sorry for not seeing your response earlier. I didn’t underestimate our MAGI as I understood it; we get Social Security and that’s it, so it’s not hard to figure out. We also earned $805 for free-lance wwork, but I had estimated somewhat more than that  for the year on my Healthcare Marketplace estimate. I asked the  Marketplace rep if our IRA savings needed to be reported and she said it was only income that determined the healthcare subsidy. It seems to me I did the correct thing every step along the way—I reported income accurately; when I became eligible for Medicare I reported it to the Healthcare Marketplace; I paid taxes on the money I withdrew from my IRA at the time of withdrawal, and now I owe about $4,000 in federal taxes? (I don’t know about my state taxes yet.) I don’t understand what I did wrong. I qualified for the medical subsidy when I was getting it and I stopped taking it when I qualified for other healthcare. Can you explain this to me a little more clearly? Thanks, Ann Cude

Victor Santucci EA
Tax Preparer

You mentioned you took a IRA distribution in 2018.  The taxable amount Would Be used to calculate your ACA payments.

Under Obama Care the income calculation for Premium Tax credit includes the following:

  • Earned Income
  • Wages, salaries, tips
  • Self-employment, business and farm income after deduction of business expenses (including depreciation and capital losses)
  • Unearned Income
  • Interest (taxable and non taxable)
  • Social Security (SSA) income
  • Dividends
  • Taxable state income tax refunds and credits
  • Portion of scholarships, awards or fellowship grants used for living expenses
  • Alimony received
  • Capital/other gains
  • IRA distributions (taxable amount only)
  • Pensions and annuities
  • Rental real estate income and royalties
  • Unemployment Compensation
  • Other income if taxable (such as prizes, jury duty pay not given to employer, etc.


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