Repaying Advance Payments of the PTC

Technical topics regarding tax preparation.
#1
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How would this work with repaying advance payments of the premium tax credit:

Woman makes very little money.
Man makes a lot of money.
Woman will need health insurance for herself and her daughter for the period 9/1/18 – 12/31/18. Let’s say she goes to the Exchange to buy it, using HOH status, and is entitled to some advance payments.
Man and woman marry each other on 12/28/18. The couple will not live together until 2019. They are not in a community property state.

I’m thinking that if they file a joint return, husband’s big income will definitely have to be considered and the alternative “we got married during the year” rule would apply. In other words, in computing household income for each unmarried month during which the Exchange policy was in force for woman and her daughter, half of the couple’s combined income would be attributed to the woman. I understand that this might act to reduce the repayment of the credit when compared to taking 100% of the joint income for each married month, but it’s really no consolation since 50% of the joint income is way more than the woman’s separate income. In summary, I’m concluding that if they file MFJ, there is no way around the 50% joint income allocation to the woman, even though the spouses were not members of the same household for any part of 2018. This will likely result in all of the advance payments having to be repaid. Do I have it right?

What is the consequence if they both file HOH? (Man has his own daughter, man maintains a household, etc.). Is it true that we’d only look at the woman’s income (instead of splitting the joint income in half for the unmarried months) and 100% of the Exchange stuff would get allocated to woman? If this is the case, woman would likely have to repay nothing. Or, do I have it wrong? Would the marriage force us to consider husband’s income even though they don’t file MFJ (and even though they don’t live in the same household for any part of 2018)?
 

#2
makbo  
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Yes, I think you have the rules under §1.36B-4(b)(2) correct.

Yes, if the woman files HoH and the policy only covered her plus child, not her spouse, I believe only her income and PTC would be on her return.

Side issues are that it is a little odd for a newly married couple to immediately take advantage of §7703(b), and also you say the woman makes "very little money", so her ability to support herself, dependent, and pay half the household expenses might be questionable, but I'm sure you have solid support for both of those.
 

#3
WEISSEA  
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Man and woman marry each other on 12/28/18. The couple will not live together until 2019. "

Would this not be considered a temporary absence, ergo they cannot file HOH.
 

#4
Nilodop  
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In order to be absent, tenporarily or otherwise, would they have had to be living together first? When a couple first move in together, married or otherwise, have they been absent all the time before then?
 

#5
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Thank you, Makbo. I parsed through the Regulation more thoroughly after I posted and I’m more confident that I got it right. If anyone’s interested in seeing my parsing, I can attach it. These rules are pretty complicated and I didn’t bother to learn them all that well when they came out since very few of our clients are impacted by them.

I agree that it is a little odd for a newly married couple to take advantage of Sec 7703(b), but those rules are fairly mechanical and both spouses could file HOH based on them. I’ve done some preliminary ’18 calc’s and it turns out that HOH is better for them on a combined basis, when compared to MFJ. And if she can go to the Exchange and purchase a policy for the last few months of the year, and receive advance payment credits, and not have to pay any of them back, that’s even better.

And when I said she makes “very little money,” that’s a little misleading, I will acknowledge. I was trying to convey that she’s eligible for the PTC, along with advance payments and will likely not have to pay anything back. She does make a respectable income…and she also has assets. Her first husband died and I suspect she either inherited some assets or there was life insurance.
 

#6
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@WEISSEA…not sure I follow…temporary absence by whom?

As mentioned, man has his own daughter who lived with him. And if you’re talking about the wife and wife’s daughter, they were never a member of man’s household in 2018 or at any prior time. They will become members of “man’s household” for the first time in 2019.
 

#7
WEISSEA  
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I’m concluding that if they file MFJ, there is no way around the 50% joint income allocation to the woman, even though the spouses were not members of the same household for any part of 2018. This will likely result in all of the advance payments having to be repaid. Do I have it right?"

Have you filled out Form 8962 Part V(or Pub 974 worksheets) using the optional "Alternative calculation for the year of Marriage"?

@WEISSEA…not sure I follow…temporary absence by whom?
H&W were married on 12-28-18. QF p4-7 : Taxpayers may file jointly if on the last day of the year they are: Married and living apart, but not legally separated or divorced.

PS I agree they could file HOH also. CA conforms to HOH IRC 7703. BOE case 352481 Appeal of Strickland 10-28-08 was a newlywed in fall of 2004 and whose husband did not live with her last part of year. HOH granted per Regs 1.7703(b)(5), no intent to separate needed. Husbands abode must be same residence to live together.
 

#8
makbo  
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WEISSEA wrote:Man and woman marry each other on 12/28/18. The couple will not live together until 2019. "

Would this not be considered a temporary absence, ergo they cannot file HOH.

I don't think temporary absence comes into play, but others might disagree.

Here is a thread from this forum re-hashing some of these issues:

Question, newly married couple

Here is a Bogleheads recent discussion that gets into Pub 501 statements and so on:

https://www.bogleheads.org/forum/viewtopic.php?t=241698

Another issue is what it means to "live together", or share the same household. There is a position that spending even one night together blows the 6-months-apart rule. Here is a discussion of that position at TaxAlamanc from four years ago, CKenefick didn't agree with that position, FWIW. I couldn't find any other court cases, but it looks like WeissEA found a CA case.

http://www.taxalmanac.org/index.php/Dis ... old__.html

Another good discussion from Kaye Thomas and some other tax pros:

http://fairmark.com/forum/read.php?4,1279
 

#9
Nilodop  
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These rules are pretty complicated and I didn’t bother to learn them all that well when they came out since very few of our clients are impacted by them. . If I were still with a firm, I'd be in that position too. But right now, I'm not with a firm or even with myself. Which is to establish that I know not whereof I speak. That's also obvious from my post #4, which was addressed to WEISSEA, and which Jeff-Ohio kind of disposed of in his post # 6, saying @WEISSEA…not sure I follow…temporary absence by whom?
and by post #8 in which makbo kind of reinforced that temporary absence is irrelevant.

But I guess I never learn to stay out of areas that I'm not familiar with, so I will ask this question. Do you even get to use 7703(b)? It starts out with
(b) Certain married individuals living apart For purposes of those provisions of this title which refer to this subsection,
. Is it section 36B you are relying on? I didn't see a reference to 7703(b) in that section. (To anticipate a likely comment, yes, I read reg. 1.36B-4(b)(2).)
 

#10
WEISSEA  
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so I will ask this question. Do you even get to use 7703(b)? It starts out with

Yes, they are married 12-28-18 but living apart in all of 2018(per OP)

REG 1.7703(b)(5): For purposes of subparagraph (1)(iv) of this paragraph, an individual's spouse is not a member of the household during a taxable year if such household does not constitute such spouse's place of abode at any time during such year. An individual's spouse will be considered to be a member of the household during temporary absences from the household due to special circumstances. A nonpermanent failure to occupy such household as his abode by reason of illness, education, business, vacation, or military service shall be considered a mere temporary absence due to special circumstances.
 

#11
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Have you filled out Form 8962 Part V(or Pub 974 worksheets) using the optional "Alternative calculation for the year of Marriage"?


No, because I don’t think that matters if they file HOH.

Taxpayers may file jointly if on the last day of the year they are: Married and living apart, but not legally separated or divorced.


Right, but they may also file as HOH under the “abandoned spouse” rule.
 

#12
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But right now, I'm not with a firm or even with myself.


That’s an odd statement, no?

(To anticipate a likely comment, yes, I read reg. 1.36B-4(b)(2).)


Did you not see it there…Here’s from Reg. Sec. 1.36B-4(b)(4)(ii):

(ii) Allocation of premiums. If taxpayers who are married within the meaning of section 7703, without regard to section 7703(b), do not file a joint return, 50 percent of the enrollment premiums are allocated to each taxpayer. However, all of the enrollment premiums are allocated to only one of the taxpayers for a period in which a qualified health plan covers only that taxpayer and no dependents, only that taxpayer and one or more dependents of that taxpayer, or only one or more dependents of that taxpayer.

What I am relying on here is the last sentence. Note that the Premium Tax Credit (PTC) is computed on Form 8962, Part II. As can be seen from the columns in that section, the premiums (which is what the above Reg excerpt is speaking to) is what drives the credit. The reg is saying that if you are married, forgetting about whether or not you are treated as unmarried under Sec 7703(b), then the premiums get allocated 50% to each taxpayer (i.e. spouse). The “however” is saying that even if you are married [again, forgetting about 7703(b)], you don’t go the 50/50 route if the policy covers just one of the spouses along with one or more of the dependents of that spouse. In my case, the woman fits squarely into this exception to the 50/50 rule. So 100% of her premiums get allocated to her.

The above (ii) language dovetails with (i). In (i) we learn that 100% of the advance premium credit payments get allocated to the wife:

If, for a period a plan covers, advance credit payments are made for only one of the taxpayers and no dependents, only one of the taxpayers and one or more dependents of that same taxpayer, or only one or more dependents of one of the taxpayers, the advance credit payments for that period are allocated entirely to that taxpayer.

So at this point, the PTC and the related advance payments are perfectly aligned, such that all of both get allocated to the wife. Further, (i) goes on to say:

If one or both of the taxpayers is an applicable taxpayer eligible for a premium tax credit for the taxable year, the premium tax credit is computed by allocating the enrollment premiums under paragraph (b)(4)(ii) of this section. The repayment limitation described in paragraph (a)(3) of this section applies to each taxpayer based on the household income and family size reported on that taxpayer's return.

FWIW, wife would be an “applicable taxpayer,” but husband wouldn’t because he makes too much money. The last sentence of the above cited (i) tells us that when determining the repayment limitation, we look at wife’s tax return only. Now, if it turns out that wife is not an “applicable taxpayer,” once her 2018 numbers are final, this means that neither spouse would be an “applicable taxpayer,” meaning neither is eligible for the PTC. Therefore, the limitation described above doesn’t apply (as it says, it only applies “if one or both of the taxpayer is an applicable taxpayer…”). Wife would have to pay everything back.
 

#13
Nilodop  
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That’s an odd statement, no?. No, not really.

Hi, my name is Nilodop.

Hi, Nilo, I'm Jeff, nice to meet you.

Hi, Jeff, what do you do?

I'm with a CPA firm and I do tax work. How about you?

I'm a CPA too, but I'm retired, so I'm not with a firm or even with myself.
 

#14
Nilodop  
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Did you not see it there…Here’s from Reg. Sec. 1.36B-4(b)(4)(ii):
. No, I did not read that, partly because what I read is the one makbo cited, Yes, I think you have the rules under §1.36B-4(b)(2) correct.

So now I wanted to read the one you cite, Reg. Sec. 1.36B-4(b)(4)(ii):
, but when I go to Cornell Law's version of the regs., looking for your cite, I find this: (4) [Reserved]. For further guidance, see § 1.36B-4T(b)(4).. So I takes me to the language you excerpt above, and there it is, i.e., it's a temporary reg., which is fine, don't get me wrong, they're pretty much as important as a final reg., but it just wasn't the reg. I was seeking, based on ... well, what I already said ... .
 

#15
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You said this:

Do you even get to use 7703(b)?
Is it section 36B you are relying on? I didn't see a reference to 7703(b) in that section.
I was seeking, based on ... well, what I already said ... .


What specifically were you asking about? It’s a little confusing, similar to your comment that you are not even with yourself…If you are not with yourself, then who is doing the typing with your fingers?
 

#16
Nilodop  
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I thought I was being perfectly clear, on both the law/reg. question and the the question of who I'm with. It's all very technical.
 

#17
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Ok, I think what you’re saying is that in order to invoke 7703(b), the particular tax provision at play actually has to refer to Sec 7703(b), as per your boxed material in Post #9 (i.e. the “which refer to this subsection” language).

Then, I think you were questioning if we can invoke Sec 7703(b) under Sec 36B since, due to faulty research conducted by someone who is not even with himself, that someone found no reference to 7703(b) in Sec 36B and/or in Reg. Sec. 1.36B-4(b)(2). In other words, you were looking for the reference to Sec 7703(b) in Sec 36B or in the regulations under Sec 36B.

Do I have it right?
 

#18
Nilodop  
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Nicely done, yes that's right. Remember I made clear my absence of experience in this area. Which is to establish that I know not whereof I speak. So when I saw these in a couple of posts, I agree that it is a little odd for a newly married couple to take advantage of Sec 7703(b) ..., and Side issues are that it is a little odd for a newly married couple to immediately take advantage of §7703(b), I assumed 7703(b) matters here. And I see this reg. excerpt that you posted, If taxpayers who are married within the meaning of section 7703, without regard to section 7703(b), ..., and that led me to believe you were saying 7703(b) macht nichts. (Does it?).
 


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