Minimum Income to Qualify for Obamacare

TBoy

Daughter signed up for Obamacare. As we understand she has to have an Adjusted Gross Income of $12160 to qualify, She is a 1099 employee and makes about $15,000 in reported income. She has deductions of about $5,000 between mileage and equipment. From what we read she needs to make $12160 on line 37 of the tax form 1040.  So basically does this mean she cannot take all her deductions in order to qualify,.

We are not real clear on all her tax qualifications and hope some one familiar with the tax side of Obamacare can help.

Thanks in advance.

swampwiz

I will presume that by "Obamacare" you mean buying an ACA Exchange policy and getting the Premium Tax Credit, and that your daughter is a USA citizen.  (Ironically, her situation for getting the premium tax credit would be BETTER if she were only a permanent resident!)  I will also presume that you are in a state that has not implemented the Medicaid expansion.  I will also presume that she resides in the 48 states + DC.

A very important concept to understand about the PTC is that there are 2 forms of it - a form that is doled out as the year goes by (i.e., in the form of a partial payment for the ACA policy), and a form that is a refundable tax credit that is technically not determined until the tax form for the year in question is done.  The 1040 tax form reconciles the amount of that which had been doled out during the tax year with how much should have been doled out had the applicant's income been known in advance.  An applicant *proposes* his "expected" income for the application, and based on that proposal, he is approved for the PTC to be doled out during the year.  Anyone is free to propose any amount that would result in not getting the PTC doled out during the year, and any amount that he is due because of his income situation would then be refunded to him as part of the 1040 form filing.  Of course, most folks would rather get their hands on the cash when it's needed for the premium.

To be eligible for the PTC, the applicant must propose an amount that is at least the poverty level income level of $12140 (and possibly, technically + $1 due to a software glitch that I am unsure has been rectified, so the stated value would need to be $12141), which is the income that is the Adjusted Gross Income (AGI) plus a few extras that I am virtually certain that anyone with an income of near poverty level would not have to be concerned about.  If the proposed income were to be less than this $12141 amount, then she would not be eligible for the credit - although, and this is very important, she would not have a tax liability for "overproposing" her income and getting the credit even though as it would turn out that she should not have gotten the credit.

Since your daughter is an independent business (which is what a "1099 employee" is), there is no reasonable prediction that can be made for her future income (i.e., if she were  "W2 employee" with set hours or salary, the case could be made that a prediction could be made, but even then, there is a level of wiggle), and thus a *possible* but not necessary data point for this prediction would be that AGI amount on her latest filed 1040 tax form.  However, there is no statutory requirement to propose this exact amount, although if an amount that is *less* than this 1040 AGI amount were to be proposed, some satisfactory explanation for the lower amount could be required; the key is that there is no explanation for proposing an amount that is *greater* than the 1040 AGI amount.

Such an independent business proprietor could thus be free to propose pretty much any income he chooses, since it is not against the law to be "optimistic" about one's income prospects, and certainly such a proprietor can equally be "pessimistic" as well.  So that said, a proposal of income of exactly $12141 (or $12200, if it is not desired to get too cute) is no more or less proper than any other number that could be pulled out a hat - and there would be the benefit of getting the maximum PTC doled out during the year.  And like I had said, if it turns out that this amount ends up being less than the poverty level, there would be no tax liability (i.e., paying back of the PTC), so it's a win-win.

If your moral conscience is not as cynical as mine (I ended up doing this for 2 years before my state expanded Medicaid, with both times my income not hitting the poverty level at the end), then you could make the argument that your daughter is not an accountant and therefore doesn't know what her deductions will be, so the gross income level of "about" $15K is to be taken as the Line 12 Business Income (which is taken from the Schedule C form, that itself will have the 1099 amount listed), and she "expects" to contribute $2800 to a traditional IRA (this contribution would be subtracted from the Line 12 income), leaving an AGI of $12200.  Or if you wanted to argue in a different direction, you could presume that she "believes" that her business will be 22% more profitable, and thus 1.22 x ($15K - $5K) = $12.2K.  How you wish to slice this tomato is your decision.

TBoy

Thanks, good explanation. We could easily get her income down to about $9,000 but were concerned that she would be kicked off the ACA because she would be below the $12141 guideline.. She is a legal citizen of Georgia and Georgia has not implemented Medicaid Expansion.

So in your experience if we took all her deductions and got her AGI (line 37 on 1040) to about $9,000 she would still be allowed to keep her ACA and the maximum PTC. The only benefit in having a lower AGI we think is paying less FICA on a 1099 employee with would be about 15%.

Thanks again for your help.