1095 A with shared policy

Technical topics regarding tax preparation.
#1
EZTAX  
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Just when I thought I had come across most of the potential challenges with this form!

Client had a heavily subsidized covered California health plan. Problem was his wife went back to work in 2014 and they did not notify the exchange. First crack at the return shows they owe about 12k. While reviewing the return I noticed that the 1095A shows that his son was also covered under the plan. Son went back to work in 2014 and is filing on his own.

I get excited and figure I can allocate 1/3 of the subsidy and cost to the kid and save some good money. In researching the situation, the directions say "You and the taxpayer claiming the personal exemption may agree on any allocation percentage between zero and one hundred percent..."

This seems like a loophole to drive the truck through! Can we really do this? If the entire 1095A is reported on the kid's return there will be a tax savings of about 13K.

I don't like when this happens. I know it is not "fair" or correct to do it this way but it seems like this was another unintended consequence of how the law was put together. But my job is to get the best, legal outcome for my clients.

Thoughts?
 

#2
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" In researching the situation, the directions say "You and the taxpayer claiming the personal exemption may agree on any allocation percentage between zero and one hundred percent..."

Seems to conflict with Form 8962 instructions which require a credit based on SLSCP premiums. See below.

Example. Gary and his 25-year-old nondependent son Jim enroll in a qualified health plan. Jim has no dependents. The
policy covers Gary, Jim, and Gary’s two young daughters who are Gary’s dependents. No APTC is paid for this policy. The Form 1095-A furnished by the Marketplace to Gary shows an enrollment premium of $15,000 for the year and shows either an applicable SLCSP premium for a coverage family that incorrectly includes Gary, Gary's daughters, and Jim or does not report an applicable SLCSP premium. Gary and Jim determine that the premium for the applicable SLCSP covering Gary and his two dependents is $12,000 and the premium for the applicable SLCSP covering Jim is $6,000. Gary and Jim are applicable taxpayers and each can take the PTC. Gary computes his credit using his household income and family size of three, and the applicable SLCSP premium for a coverage family of three of $12,000. Jim computes his credit using his household income and family size of one, and the applicable SLCSP premium for a coverage family of one of $6,000. Gary and Jim must allocate the enrollment premium of $15,000 reported on the Form 1095-A, Part III, column A, in proportion to each taxpayer's applicable SLCSP premium as follows. Gary’s allocated enrollment premium is $10,000 ($15,000 x $12,000/$18,000) (67% of the total premium of $15,000) and Jim’s allocated enrollment premium is $5,000 ($15,000 x $6,000/$18,000) (33% of the total premium of $15,000).
 

#3
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Thanks for the reply. I saw that but am not sure it answers the question. It is quite confusing - the directions seem to contradict themselves.

I will try and explain.

Two paragraphs above the example you quoted there is a heading " Policy shared by two or more tax families". The last sentence of that paragraph says "see Policy shared with an individual for whom another taxpayer claims a personal exemption, earlier". That takes us back to the bottom of page 13. Continuing on to the top of page 14 you will find the source of my confusion - You and the taxpayer claiming the personal exemption may agree on any allocation percentage between zero an one hundred percent. This obviously disagrees with the example you cited.

I really want to wrap this up and just follow the example you found but I don't want the cheat my client.
 

#4
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" The last sentence of that paragraph says "see Policy shared with an individual for whom another taxpayer claims a personal exemption, earlier".

This is for the case where a say a separated spouse can claim one of the children on the say the husbands HI policy as a dependent. The example I cite is for two separate tax families, the parent and the non dependent son. Your situation is the latter, son is a non dependent.
 

#5
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In my view, the two different allocations discussed in this thread are for two different situations which can both involve a child.

If, at the time of enrollment, the taxpayer indicated to the marketplace that they would be one tax family (in other words, that the child would be claimed by the taxpayer) but at the time of filing were actually two tax families, then the allocation would be made as per “Policy shared with an individual for whom another taxpayer claims a personal exemption” (Form 8962 instructions), which allows an allocation in any percentage amount agreed to by the two separate tax families (and provides an alternative calculation if an amount is not agreed upon) (described by EZTAX).

If, at the time of enrollment, the taxpayer indicated to the marketplace that they would be two tax families (in other words, that the child would not be claimed by the taxpayer) and at the time of filing remained two tax families, then the allocation would be made as per “Policy shared by two or more tax families.” (Form 8962 instructions), which requires the allocation as shown in the example that has been re-posted in this thread by WEISSEA.

The OP indicated that the son went back to work in 2014 and will claim his own dependency exemption. It is possible that the first allocation (whatever is agreed upon) could apply, depending on the absent facts.
 

#6
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Thanks Trailman, that was indeed the source of my confusion.

When they signed up for the plan they did not know the son would be working and thought they would be able to claim him.

Still seems like a very aggressive position and I am not quite sure what I will do.

I appreciate you both taking the time to follow this thread.

Thanks.
 

#7
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Bumping this. Any new opinions?
 

#8
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Quote: "If, at the time of enrollment, the taxpayer indicated to the marketplace that they would be two tax families (in other words, that the child would not be claimed by the taxpayer) and at the time of filing remained two tax families,"

Based on the 1095-A, how would we know if the taxpayer indicated to the marketplace whether they would be two tax families or one?
 

#9
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Yellow dog - two families, two 1095A forms. One tax family, all on one 1095A form.
 

#10
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Duh! Too many late nights.
 

#11
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That is for sure!
 

#12
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"This seems like a loophole to drive the truck through! Can we really do this? If the entire 1095A is reported on the kid's return there will be a tax savings of about 13K. "

Yes, thats what Form 8962 says. Disregard my post #2 it is for the 8962 shared allocation case situation 3 which is no APTC issued. The OP's case is 8962 shared allocation situation 4 where APTC is issued and one or more covered persons are not in the taxpayers tax family. In that case any agreed to allocation is ok (e.g. 0% parent, 100% non dependent child).

These cases arise because the parent either does not apply correctly or does not report changes in household income and/or dependency changes, as required by the exchange; and the exchange does not adequately verify the applicants projected income/dependency data
 

#13
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Has anyone seen someone charged with either the $25000 or $250,000 penalty for providing inaccurate/ false/fraudulent information to the Marketplace when signing up?
 

#14
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Having an issue just like this...
Parent's buy plan thru the marketplace with APTC which covers their unmarried child who is 25 at the end of 2018. Partway thru the year, two things happen:
1) Wife goes on medicare
2) parent's realize that child is going to earn to much in wages to qualify as their dependent.

They report it to the marketplace as they are supposed to, and premiums and APTC are adjusted.

Only one 1095A was issued, meaning its a situation where when they signed up, they told the marketplace that they were 1 tax family, when they will be two (parents as one tax family, child as another on her own tax return). This seems like it would follow rules for Allocation situation 4, which says they can divide up the premiums/APTC/SLCSP any way they wish. The child only made 7,000 dollars in 2018. Are they really saying that the child can report 100% of all of this on her tax return, parents (who have a much higher income) can report 0%? Am I understanding this correctly? It just seems off to me...
 

#15
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Are they really saying that the child can report 100% of all of this on her tax return, parents (who have a much higher income) can report 0%? Am I understanding this correctly? It just seems off to me...


Yes, you are correct. Had similar case for 2018 and taxpayer was able to shift entire subsidy to a non dependent child who then received a large PTC refund. One should read STEVEN A. MCGUIRE AND ROBIN L. MCGUIRE, Docket No. 17312-16. Filed August 28, 2017 where the shoe was on the other foot. The Tax Court held "But we are not a court of equity, and we cannot ignore the law to achieve an equitable end. Commissioner v. McCoy, 484 U.S. 3, 7 (1987); Stovall v.Commissioner, 101 T.C. 140, 149-150 (1993); Paxman v. Commissioner, 50 T.C. 567, 576-577 (1968), aff’d, 414 F.2d 265 (10th Cir. 1969). Although we are sympathetic to the McGuires’ situation, the statute is clear; excess advance premium tax credits are treated as an increase in the tax imposed. Sec. 36B(f)(2)(A). The McGuires received an advance of a credit to which they ultimately were not entitled. They are liable for the $7,092 deficiency.
Here, the flush language of the regulation is: Reg 1.36B-4(ii)B (2) “the enrolling taxpayer and claiming taxpayer may agree on any allocation percentage between zero and one hundred percent.
 

#16
Chay  
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TAXMASTER wrote:Here, the flush language of the regulation is:

Excuse me if I'm missing something, but I don't think Regs. 1.36B-4(a)(1)(ii)(B) contains any flush language, either inside or outside of the "allocation percentage" paragraph you're referring to.
 

#17
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Hey Taxmaster,
Thanks for the input, I appreciate it. Remarkably, the parents and daughter had no interest in yielding the best financial result by having the daughter claim 100% and allocating 0% to the parents -- they felt that since the parents paid for everything, that the parents should report 100%, despite a better tax outcome being the opposite. To each his/her own, right?
 

#18
Chay  
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regicide9 wrote:since the parents paid for everything, that the parents should report 100%

Did you tell them that if they tried to take this position on a different issue that was favorable to them and not to the government, they'd almost certainly lose?

Unless expressly provided otherwise, your expenses remain your expenses regardless of who pays them. Allocating nothing to the daughter violates this fundamental principle.
 

#19
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Is it true that when we allocate the relevant policy amounts between, say, a parent and a non-dependent child, we can only allocate for those months in which the policy covered both individuals?

In other words…mom and son are covered from 1/1/19 through 4/30/19. On 4/30, son drops off. Thereafter, from 5/1 through 12/31, only mom is covered under the policy. (Adult son got a job in April, along with his own health insurance, and will be filing his own return and he isn’t a dependent of mom for 2019).

We cannot allocate policy amounts between mom and son for May through December, correct?
 

#20
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The instructions for Allocation Situation 4 state:
You may use the percentage you agreed on for every month for which this allocation rule applies, or you may agree on different percentages for different months.


Since the allocation rule only applies for the months which include an individual who is not a member of the tax family, I think your interpretation is correct.
 

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