ACA and Constructive Income

[Grant]

I have a client that was below poverty level thru the year, but received a K-1 from an estate that put him in +401 bracket, and the program is telling me that he owes back 11M in premium credits for 2015 - I can not seem to find anything on constructive income in regs, instructions or program - any ideas?

[Lion EA]

Does he qualify to make a deductible IRA contribution to lower his AGI?  Or, HSA or....?

[GraceNY]

54 minutes ago, Lion EA said:

Does he qualify to make a deductible IRA contribution to lower his AGI?  Or, HSA or....?

Yeah, Lion is right, only option is to try and lower AGI.

Had similar situation this year.  Deductible IRA saved the taxpayer big $'s.  One client did not have the money to contribute, but had some monies in a non qualified mutual fund.  Called the co and had them transfer 6,500 to their IRA mutual fund as a 2015 IRA contribution.  

Your situation may be different depending on earned income, AGI, and affiliation with a retirement plan, but it's worth a look.

[Jack from Ohio]

He owed all the PTC back that was paid for him.  He must have known about the income since it was enough to put him over 400%.  He either put erroneous information in the Marketplace, or when he knew he was getting the extra income, failed to update his information.

Either way, he owes it all back and unless he can make an IRA contribution to get below 400%.  However, even if he makes it down to 300%, he will still have to pay back a substantial portion of the PTC that was paid.

Thank our Congress and Whitehouse for his situation.  Or, him not paying attention or intentionally trying to "game" the system. 

It is not surprising to me to see the huge number of taxpayers intentionally gaming or attempting to game the system.

[jklcpa]

If he can reduce his MAGI to below the 400% level, the amount of APTC to be paid back has a cap.

I'd also be one to encourage him to do an IRA or HSA if possible.

[GraceNY]

54 minutes ago, jklcpa said:

If he can reduce his MAGI to below the 400% level, the amount of APTC to be paid back has a cap.

I'd also be one to encourage him to do an IRA or HSA if possible.

Yeah, that cap makes for some interesting outcomes.  Had one taxpayer this year where she had COD from credit card and it put her in the 200 -300% of FPL level and APTC she received was based on the 100% of the FPL.  Moved money from non-qualified mutual fund to an IRA.  Between that and the "Saver's Credit"  it resulted in a great outcome.

Also, picked this up from another forum wherein poster poses the following.  {Note I am in no way recommending this, nor would I engage in this).  Taxpayer gives erroneous income amount to Market Place.  Get's APTC (and don't forget subsidies in the form of lower co-pays and deductibles).  Then when TP reconciles APTC on tax return has to pay only some of it back due to the fact that it's capped.  In other words, they not only enjoyed a much lower premium, but the subsidy as well as, which they don't have to repay,and the APTC pay back is capped.  Hmmmm....how long before the fraudster's figure this one out.

[Catherine]

20 hours ago, GraceNY said:

how long before the fraudster's figure this one out.

I can assure you they already have.

[Jack from Ohio]

2 hours ago, Catherine said:

I can assure you they already have.

DITTO!!