This change from the COVID relief bill and health care has been confusing. I was not aware of this whole cliff-is-gone development until: #1, I got an unexpected refund of my subsidy repayment from the IRS months after filing taxes, #2, saw my bronze HSA plan health premium drop to $4 (that is FOUR dollars) per month, and #3, was invited to shop for a silver plan to "save money."
Last year, my first full FIRE year, I threaded a fine needle in selling my investments to be sure I stayed away from the 400% FPL cliff edge. When filing I ended up owing a little due to the medical subsidy repayment but that was refunded now with the passing of the relief bill. That made my tax burden zippo-nada, and somewhere out there Go Curry Cracker cheered (https://www.gocurrycracker.com/never-pay-taxes-again).
This week I got an invitation from my state's Healthplan Finder web site to get a silver plan but I still want that HSA as a Roth replacement and a way to reduce taxable income, so I won't be doing that unless one of you smart folks can tell me why I am screwed up on that for this weird COVID bill. When my premium dropped to only $4 per month I immediately went in to the system and bumped my monthly premium back up so I avoid any sort of repayment until I can figure out some shit.
My question is-- with the cliff gone, how much can my taxable income be to avoid repayment of anything? Is it unlimited for the next couple years? I would like to gross out a large amount to remodel my kitchen and I am thinking I will have the chance to bank a ton more than I usually would and not have the subsidy repayment thing bite my ass.
Am I understanding this right? Thanks for any advice in language suitable for helping Michael Scott set up this lemonade stand.
There is a lot to unpack here.
There are three different things that the fourth COVID relief bill did that are affecting you:
1. It eliminated subsidy repayments for 2020. Normally if you get too much premium subsidy during the year for whatever reason, you have to pay some back. This is done at the bottom of Form 8962. For people who were affected by this provision, the IRS generally just added back the subsidy repayment to their tax refund.
2. It eliminated the 400% FPL cap for subsidies for 2021 and 2022. For 2020 and previous, if you were over 400% FPL, then you didn't qualify for any premium subsidies (and if you got them you had to pay them all back). For this year and next, if you're over 400% FPL you can get a subsidy so that your insurance premium will be 8.5% of AGI.
3. It makes the subsidies more generous for 2021 and 2022. If you're in the 133% to 400% of FPL range, they lowered the percentage of your AGI that you're expected to pay towards HI premiums, which is a roundabout way of increasing the subsidies.
Separately, the President also opened the exchanges for everyone so people could either (a) sign up if they weren't currently on an ACA plan, or (b) switch plans for any (or no) reason if they were on an ACA plan they didn't like. I believe this was done via executive action.
So for you, MissNancyPryor:
A. The refund of your subsidy repayment is because of item #1 above.
B. The reduction in your bronze premium is due to item #3 above.
C. The invitation to shop for a silver plan is a result of item #3 and the President's executive action.
Since you still want an HSA, you can stay with your current bronze HSA plan and do everything as you normally would in terms of making an HSA contribution. You *might* be able to switch from a bronze HSA to a silver HSA but note that (a) you might have to restart your deductible, and (b) the silver HSA will probably cost more.
If your subsidized premium is now $4 a month, then that's all you need to pay. If you choose to overpay, eventually your HI company will probably get in touch with you to refund the overpayment to you.
Repayment is back in play for 2021 (and presumably 2022). So you'll have to repay any excess premium subsidy you get this year.
The "not having to repay" thing was only for 2020.One way to make sure you won't have to repay is to make sure that your actual AGI and family size on your tax return
match or are better than the AGI and family size you reported to your state marketplace. In the case of AGI, your actual tax return AGI would need to be lower than your estimated AGI, and your family size would have to be equal to or larger than your reported family size. And of course you'd have to report your zip code correctly.
A second way to avoid repayment is to refuse the advanced premium tax credit (aka subsidy) during the year, pay your full bronze HSA premium now, and collect the premium tax credit as part of your tax return. Most people don't like to do this because the unsubsidized premiums are generally high, but it's another way to guarantee not having to repay anything.
If your AGI is higher than you estimate, then I think you'll still be required to repay any excess subsidy even though the 400% cliff is gone. You just might not have to repay as much, because instead of being entitled to a subsidy of $0, you'll be entitled to a subsidy of (cost of your bronze HSA plan - 8.5% of your AGI). Note that for very high incomes and or relatively young people, that amount still could be $0.