ACA problems already

[SaraEA]

Got a call from a client today who got a postcard reminding her that she will be getting a 1095A which she will need to file her 2014 return.  As I talked with her I realized the problem wasn't with her confusion over the form.  She was divorced last year and got subsidized insurance for the rest of the year through the exchange. This year she called the navigator to sign up again and mentioned the alimony she will be receiving in addition to her wages.  The navigator told her alimony doesn't count and signed her up with the same income and same subsidy. I've been to a lot of classes on this and just figured I probably missed some of the finer points so I read the regs.  Guess what?  Alimony sure does count. MAGI for this purpose doesn't subtract anything but adds back tax-exempt interest, any foreign income excluded, and the nontaxable portion of Social Security. Did the navigator confuse alimony with child support?  I have no idea, but these folks are obviously not as well trained as we hoped.

 

Another fine point is that "household income" includes SS that children collect (not SSI though). We are so used to reviewing that form and just telling the client the child doesn't have to file.  Well, that income counts when calculating the amount of subsidy the family can get (or will have to pay back). This tax season ain't gonna be pretty.

[Jack from Ohio]

Got a call from a client today who got a postcard reminding her that she will be getting a 1095A which she will need to file her 2014 return.  As I talked with her I realized the problem wasn't with her confusion over the form.  She was divorced last year and got subsidized insurance for the rest of the year through the exchange. This year she called the navigator to sign up again and mentioned the alimony she will be receiving in addition to her wages.  The navigator told her alimony doesn't count and signed her up with the same income and same subsidy. I've been to a lot of classes on this and just figured I probably missed some of the finer points so I read the regs.  Guess what?  Alimony sure does count. MAGI for this purpose doesn't subtract anything but adds back tax-exempt interest, any foreign income excluded, and the nontaxable portion of Social Security. Did the navigator confuse alimony with child support?  I have no idea, but these folks are obviously not as well trained as we hoped.

 

Another fine point is that "household income" includes SS that children collect (not SSI though). We are so used to reviewing that form and just telling the client the child doesn't have to file.  Well, that income counts when calculating the amount of subsidy the family can get (or will have to pay back). This tax season ain't gonna be pretty.

And the fees will be increasing!!

[Gail in Virginia]

I thought that I understood that children's income did not have to be added to household income if they did not have a filing requirement.  Is SS received by the child an exception that has to be added back even if they don't have sufficient income to have a filing requirement?

[Jack from Ohio]

I thought that I understood that children's income did not have to be added to household income if they did not have a filing requirement.  Is SS received by the child an exception that has to be added back even if they don't have sufficient income to have a filing requirement?

Yes

[Pacun]

Correct ONLY if filing requirements kick in you have to include income for dependents.

[Jack from Ohio]

Correct ONLY if filing requirements kick in you have to include income for dependents.

Incorrect.  ALL SS income from all dependents is included whether the dependents have filing requirements or not. 

[Pacun]

Sounds good. I guess I was sleeping or the instructor didn't mention it.

 

This document looks good and handy.

 

http://laborcenter.berkeley.edu/pdf/2013/MAGI_summary13.pdf

[Pacun]

It is not clear to me if it is the SS income from dependents or the non-taxable SS income for the filer(s). So, as a dependent, if you are not required to file, 1040 doesn't exist.... if 1040 doesn't exist, line 20 doesn't exist either.

Edited January 14, 2015 by Pacun

[jklcpa]

Incorrect.  ALL SS income from all dependents is included whether the dependents have filing requirements or not.

 

Pacun is correct.  Only MAGI of dependents required to file is included in household income.

 

From form 8962 instructions for line 2b -

Enter the modified AGI for all of your dependents on line 2b. Use

the worksheet next to figure the combined modified AGI for the

dependents claimed as exemptions on your return. Only include

the modified AGI of those dependents who are required to file a

return. Do not include the modified AGI of dependents who are

filing a tax return only to claim a refund of tax withheld or

estimated tax.

 

[Jack from Ohio]

 

Pacun is correct.  Only MAGI of dependents required to file is included in household income.

 

From form 8962 instructions for line 2b -

Enter the modified AGI for all of your dependents on line 2b. Use

the worksheet next to figure the combined modified AGI for the

dependents claimed as exemptions on your return. Only include

the modified AGI of those dependents who are required to file a

return. Do not include the modified AGI of dependents who are

filing a tax return only to claim a refund of tax withheld or

estimated tax.

 

Find the definition of MAGI as related to the Shared Responsibility Payment.  THAT is the question.  Note the term "modified AGI."

[Pacun]

Find the definition of MAGI as related to the Shared Responsibility Payment.  THAT is the question.  Note the term "modified AGI."

 

Share responsibility payments DO not apply to dependents.

[Gail in Virginia]

From the website Health Reform: Beyond the Basics, a project of the Center on Budget and Policy Priorities:

 

Do Social Security benefits received by a dependent child count as part of Modified Adjusted Gross Income (MAGI)?

Whether the Social Security benefits received by a dependent child counts towards MAGI depends on whether the child is required to file a tax return. A household’s MAGI is the sum of the MAGI of the taxpayer, the spouse filing jointly, and dependents who are required to file a return. Dependents who have income above a certain amount ($6,200 in earned income and $1,000 in unearned income in 2015) must file their own tax return even though someone else claims them as a dependent. (Social Security benefits do not count toward these thresholds.) If the dependent with Social Security benefits is not required to file a return, any Social Security benefits he or she receives are not counted.

 

I would still like to see an actual cite that I feel comfortable with.  What I see on the IRS website also seems to say that dependent income is irrelevant if they have no filing requirement.  But none of these sources is actually considered substantial authority.  Jack, do you have a cite for your position?

[Catherine]

It's all going to be in Pub 974 -- which hasn't been written yet.  So, in the immortal words of Zippy the Pinhead:

 

Are we having fun yet?

[jklcpa]

 

Jack from Ohio, 14 Jan 2015 - 12:59 PM, said:

Find the definition of MAGI as related to the Shared Responsibility Payment.  THAT is the question.  Note the term "modified AGI."

 

 

From the website Health Reform: Beyond the Basics, a project of the Center on Budget and Policy Priorities:

 

Do Social Security benefits received by a dependent child count as part of Modified Adjusted Gross Income (MAGI)?

Whether the Social Security benefits received by a dependent child counts towards MAGI depends on whether the child is required to file a tax return. A household’s MAGI is the sum of the MAGI of the taxpayer, the spouse filing jointly, and dependents who are required to file a return. Dependents who have income above a certain amount ($6,200 in earned income and $1,000 in unearned income in 2015) must file their own tax return even though someone else claims them as a dependent. (Social Security benefits do not count toward these thresholds.) If the dependent with Social Security benefits is not required to file a return, any Social Security benefits he or she receives are not counted.

 

I would still like to see an actual cite that I feel comfortable with.  What I see on the IRS website also seems to say that dependent income is irrelevant if they have no filing requirement.  But none of these sources is actually considered substantial authority.  Jack, do you have a cite for your position?

 

 

The cite I have is from the U.S code, specifically 26 U.S. code sec 5000A (c )(4)(A), (B ) and (C ) - http://www.law.cornell.edu/uscode/text/26/5000A. Sec 5000A is the part of the code that is the "Requirement to Maintain Minimum Essential Coverage".

 

(4) Terms relating to income and families

For purposes of this section—

 

(A) Family size

The family size involved with respect to any taxpayer shall be equal to the number of individuals for whom the taxpayer is allowed a deduction under section 151 (relating to allowance of deduction for personal exemptions) for the taxable year.

 

(B ) Household income

The term “household income” means, with respect to any taxpayer for any taxable year, an amount equal to the sum of—

 

(i) the modified adjusted gross income of the taxpayer, plus

(ii) the aggregate modified adjusted gross incomes of all other individuals who—

(I) were taken into account in determining the taxpayer’s family size under paragraph (1), and

(II) were required to file a return of tax imposed by section 1 for the taxable year.

 

(C ) Modified adjusted gross income

The term “modified adjusted gross income” means adjusted gross income increased by—

 

(i) any amount excluded from gross income under section 911, and

(ii) any amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax.

 

Forgive me if I am wrong, but the way I read this is that the MAGI of those dependents has the possibility of being included, but the hurdle that stops its inclusion is 5000A(4)(B )(ii)(II) just below the big red "AND".   Please, if someone has some official cite that contradicts this, please share it.

Edited January 15, 2015 by jklcpa
format change only

[easytax]

It's all going to be in Pub 974 -- which hasn't been written yet.  So, in the immortal words of Zippy the Pinhead:

 

Are we having fun yet?

 

I actually think ALL PARTIES are correct.  As Catherine mentions when (if ever) Pub 974 is released, we will know.

 

Just as there are numerous definitions of various (sorry, forgot name of things described by just initials) in such things as "educational credits", etc. and other tax code publications; there may be MANY definitions of MAGI as pertains to EACH SECTION of computations in the ACA (not necessarily just IRS regulations.

 

 

   Food for thought.

[Pacun]

I think Judy got it straight from the horse's mouth. All the classes I have taken, the instructors said that you only consider the dependents' income when they are required to file.

[jklcpa]

I actually think ALL PARTIES are correct.  As Catherine mentions when (if ever) Pub 974 is released, we will know.

 

Just as there are numerous definitions of various (sorry, forgot name of things described by just initials) in such things as "educational credits", etc. and other tax code publications; there may be MANY definitions of MAGI as pertains to EACH SECTION of computations in the ACA (not necessarily just IRS regulations.

 

 

   Food for thought.

 

 

What I posted above is the tax code, a higher authority than any IRS pub or reg.  Any instructions, pubs and regs that have already been issued refer back to 5000A as it is THE authority here.  Unless it is amended in future, I think we already have the answer and don't need to wait for future publications for clarity.

[Gail in Virginia]

With Judy's post, I think she put this issue to rest.  Pubs, and opinions by instructors, are not substantial authority.  Code is the highest substantial authority. 

[easytax]

I must agree.   I missed the part (Sec 5000A is the part of the code that is the "Requirement to Maintain Minimum Essential Coverage".) in Judy's message that actually covered my statement.

 

 

I assumed (and it did to me but not "U") that they had not defined "household" and "MAGI" and such under the ACA part of the code yet.. Again, I stand corrected.

 

 

THANKS Judy for site and clarification --- let me know if you need any chocolate   for the extra cost of sharpening the drill bit needed to get through my "thick skull".  

[jklcpa]

Hey easytax; I'm hardheaded too (uh, in case anyone missed that so far!   ), and I'm happy to help when I'm able. Sometimes I'm also wrong.  We all need to keep discussing and questioning these issues and situations because sometimes these things are clear as mud.  We need to help each other get to the correct answers because this season is going to be a bear.

 

Thanks for the offer of chocolate. Tonight's treat was a Reese's Klondike ice cream bar. 

[kcjenkins]

And just in case you need a laugh, I offer you this:

 

[Lion EA]

Frango Mints!

[Terry D EA]

I agree we need to keep discussing this issue so we ALL have a better understanding. It is important to note that for me, when a question arises that I need help with, this is the first and usually the final place for me to get answers. All of the collective research, knowledge and professionalism displayed here makes this one of the most valuable tools we have. Thanks to all involved.

[TAXMAN]

So are we saying that a child that only has SS income, is that that income is NOT to be listed as part of the household income?

[Jack from Ohio]

So are we saying that a child that only has SS income, is that that income is NOT to be listed as part of the household income?

As I now understand it, if the child has a filing requirement, it must be included as part of their MAGI.