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premium tax credit year of marriage

Technical topics regarding tax preparation.
#1
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I have new clients. They got married Dec 15th 2018. The spouse earned 20,000 a year, and took a heavy amount of advanced premium tax credits during the year. The other earned about 150,000 for the year. No dependents. Clearly their joint income was in the 401% and above of the poverty level for purposes of calculating premium tax credit.

When I went to do the alternative calculation on Form 8962, it appears that instead of breaking apart the two spouse's income for the months they weren't married based on what they actually earned, they divide it exactly in half, and use that number to determine whether the person who took APTC was above the 400% threshold.

Am I understanding this correctly? Basically, since the other spouse made significantly more, the lower earning spouse gets penalized for the whole year, and now must repay the APTC taken for the whole year? Am I missing something?
 

#2
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That is how it works per the form instructions. One half of the total income on the joint return applies to each of them. Most of the time, alternate calculation in the year of marriage is no help at all. But sometimes MFS results in the spouse who had the PTC falling into the income range where the amount of repayment is limited and the couple is better off over all.
Because on T.A. ten was the most you were allowed
 

#3
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Had a few clients get caught by the same issue over the last few years. Searched high and low for a way out but there is none. It just sucks.....
 

#4
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But there should be a cap on the repayment amount if I remember correctly. And it is less than the total PtC taken. So not all is lost...
 

#5
EZTAX  
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No cap because income is over 400% of federal poverty level. They have to pay it back.
 

#6
Joanmcq  
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I had a couple that wanted to get married on Dec. 31 but asked me first. One had taken APTC. They changed their wedding date to the new year. I love clients that ask first.
 

#7
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Wish I had clients like that Joan. Thanks for confirming I was reading this correctly...
 

#8
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Offhand, does anyone know if they file MFS if the person who has the premium tax credits has to recapture all of it or if it is capped since he is under 401% of poverty?
 

#9
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regicide9 wrote:Offhand, does anyone know if they file MFS if the person who has the premium tax credits has to recapture all of it or if it is capped since he is under 401% of poverty?


Its capped.
 

#10
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Thanks TaxMonkey. Was waiting for final details from another part of the tax return, then I'll split it.Hopefully since its capped, it'll save them some.
 

#11
EZTAX  
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Wow -thanks for this. I am working on a return where a legal settlement is causing the 20k subsidy to have to be paid back. I have tried it on my software using MFS and the amount of subsidy repaid is capped because under 400% poverty. In California, so I am using the community property rules to split income. Still trying to confirm software is correct. I found this:

"If your filing status is Married Filing Separately, the repayment limitation above applies to both spouses separately based on the household income reported on each return."

From the IRS website: https://www.irs.gov/affordable-care-act ... s#repaying

BUT- on healthcare.gov

https://www.healthcare.gov/income-and-h ... hold-size/


it is saying that unless there is domestic abuse you need to include the spouses income as "household" income.

So not really sure it will work.
 

#12
EZTAX  
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Still confused:

From the instructions for form 8965:

"Tax household. For purposes of Form 8965, your tax household generally includes you, your spouse (if filing a joint return), and any individual you claim as a dependent on your tax return."
 

#13
EZTAX  
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I think I found the answer in the instructions for form 8962. Looks the payback will be limited but the calculations are more than the brain cells left for the day can handle so I will punt for a day or two.

" If you enrolled in coverage in the Marketplace with your
spouse, or with another individual who is not in your tax
family, your coverage family and applicable SLCSP
premium may be different from the coverage family and
applicable SLCSP premium the Marketplace used to determine
the amount of your APTC. In that case you must use a different
applicable SLCSP premium to calculate your credit than the
amount reported on Form 1095-A, Part III, column B. See Pub.
974 for information on determining the correct applicable SLCSP
premium or, if you enrolled through the federally facilitated Marketplace, go to HealthCare.gov/Tax-Tool/ "
 


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