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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
EZTAX  
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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
EZTAX  
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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
EZTAX  
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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?
 


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