INSIGHTS ABOUT HEALTH CARE REFORM

NOVEMBER 3, 2016  

Tax Planning Can Save Thousands
 
Many individuals fail to realize the importance of tax planning. Others realize the importance of tax planning but only as it relates to their federal and state income tax obligations. Unfortunately, repayment of the Affordable Care Act's (ACA) Advanced Premium Tax Credits (APTC) are often overlooked, causing individuals to pay back thousands of dollars on their tax return. 
 
How It Works
If an individual goes to the Health Insurance Marketplace and receives an APTC, it is based off of the latest return information on file with the IRS, unless the individual has documentation to prove otherwise. The Premium Tax Credit (PTC) for the year, however, is based on the individual's current tax return. If the two returns (the prior year return that the IRS has and the current year return) are the same, there is no issue. However, often the two returns vary. The rules for repaying the APTC state that if the taxpayer's income is 400 percent or more of the Federal Poverty Line (FPL), then the entire APTC that they had received will need to get repaid to the IRS when they file their current year tax return. However, if the individual makes less than 400 percent of the FPL, the repayment is limited to a maximum of $1,275 for single individuals and $2,550 for a married couple filing jointly.
 
Example
A couple receives an APTC of $485 per month in 2016, or $5,820 for the calendar year. However, this was based on their income from a prior year's tax return. Their current year income is $55,000 plus $9,640 of Schedule E rental income for a total income of $64,640. When they file their tax return on April 15, 2017, they will need to repay their entire APTC of $5,820. If they would have paid $921 more in Schedule E expenses for the 2016 year, they would have been under 400 percent of the FPL ($63,720) for a married couple filing a joint return (with no dependents), and therefore they would have only needed to pay back $2,550 of their APTC, a savings of $3,270.
 
Please make sure this doesn't happen to you. Tax planning today can save you thousands of dollars tomorrow. Contact your Eide Bailly professional or a member of our  Health Care Reform team for additional information. 
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