At what Age Are Kids No Longer Counted for Subsidy?

[sman]

Forgive me if this has been discussed in this section. At what age does a child no longer count towards qualifying for a subsidy? For example, husband, wife, 21 year old and 16 year old. Would this count as 4 family members toward the income limits or 3 family members? I'm just trying to figure out when the cut off is.

We all know that children can stay on their parents plan up to age 26, but will that be the age when calculating the income limits for the subsidy?

 

[bluediamond]

Well don't know the specific answer to that, but let's say they have 5 kids and one of them is 21, they only pay for the first three and the one that is 21 they have to pay for, so one is getting it for so to speak free. I am thinking if the kid is working to age 26 they would count his income.

 

[Yagents]

I believe its based on which kids u claim as a dependent on ur taxes. Also must include their income. Age does not matter vs ability to stay to 26 if still dependent

 

[Ann H]

All of you win the prize for a correct answer. YAgents really nailed it.

The subsidy is different from the coverage. Just because you can cover a child to age 26 doesn't mean you get a subsidy for him/her, and just because you get a subsidy for a child doesn't mean you have to cover him/her.

There are 3 elements - Subsidy, Coverage, Penalty

For Subsidy and Penalty, it's calculated based on the household members shown as dependents on your tax return. Maybe that includes an adult child, a niece, or some other person who is dependent upon you for support and shown as a dependent on your tax return. Maybe that does NOT include your own child (for instance if your ex-spouse claims the child as a dependent on the tax return). Just the people on your tax return are included in your subsidy calculation for purposes of household income, and member share of premium. Same thing for the penalty - you are responsible to have minimum essential coverage for all people on your tax return or pay a penalty for them.

Coverage - Once you've established household income, and member share of premium, now you figure the price of the 2nd lowest cost Silver plan in order to calculate the subsidy. This is where you decide who is to be covered. This may be a different mix of people than those on your tax return.

And, by the way, the rule of 3x's for children under age 21 applies just to rating the premium for the coverage, and does not apply to Subsidy or Penalty calculation at all.

 

[sman]

What a freakin mess this is going to be. I know we've said that many times, but I just wanted to reiterate it.

So, the way I understand the explanations here is if a person has an adult child (say 21 years old) still living at home, but not being claimed as a dependent, he/she doesn't count in the family count (i.e. - number of people in the family) in regard to the subsidy? If there were two adults and one 21 year old and a 17 year old in the household, the family count would actually only be three. Is that correct?

So wouldn't it be better for the 21 year old to apply for coverage individually especially if his/her income is fairly low?

 

[Yagents]

It depends on if you save more on the dependent deduction vs subsidized price or medicaid

 

[timsip]

So wouldn't it be better for the 21 year old to apply for coverage individually especially if his/her income is fairly low?

Here is where the mud gets really muddy. If this 21 year old has an income, who is claiming him/her? If they live at home, that income goes towards the household income which would count towards subsidy. This is where a good understanding of all the caveats of the new laws is necessary.

If the 21 year old has an income of about $23K (not very uncommon for someone in college), that is just over 200% of poverty level for an individual which in that range it's too much for Medicaid, but still allowing to get out of pocket help and premium subsidies. If that kid's parents together make $75,000 and if they don't count the 21 year old on taxes but do count the younger sibling (family of three), they should qualify for subsidies as long as the 21 year old does not live within the home. If the 21 year old lives in the home, that adds $23K to the household income which makes the family ineligible for subsidy for both family of three and four even if the 21 year old isn't getting coverage with mom and dad. This situation can be more common that one would think.....after writing that, I think I have confused myself more than cleared anything up!

 

[Ann H]

I don't think "living in the home" is relevant, except as it applies to whether or not the person is a dependent on a tax return.

So, let's use Tim's example of a 21 year old with an income of $23k. Since it's likely the parents do NOT contribute more than 50% of his support, he won't be a dependent on their tax return. Therefore his income is not included in "household income". He can get his own plan with his own subsidy.

Like YAgents said, you consider the benefit of the exemption on the tax return, the benefit of the subsidy, and decide which way to go.

However, this really only applies to marginal cases. There is a clause in the IRS TD9590 reg that doesn't allow you to manipulate extremes of the "is he or isn't he a dependent on the tax return" issue. If the person could have qualified as a dependent on another person's tax return, but chooses to file his own tax return instead to get more subsidy, it's not allowed.

Example, 14 year old kid has a paper route making $3,000. Parents won't qualify for a subsidy for their household so they decide he's a stand-alone taxpayer, and he should get a subsidy (or Medicaid in this case). Nope. The parents still provide more than 50% of his support, so he is qualified to be a dependent on their tax return. They can't say he supports himself and then gets a subsidy.

Same issue about people who are not required to file a tax return for any reason other than SE taxes or other taxes. Example of a kid with a lemonade stand or perhaps side Ebay business. Just because there is Self-Employment taxes (which means a tax return needs to be filed) doesn't mean he can use that tax return to get a subsidy. He is still a dependent on Mom & Dad's return.
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What a freakin mess this is going to be. I know we've said that many times, but I just wanted to reiterate it.

So, the way I understand the explanations here is if a person has an adult child (say 21 years old) still living at home, but not being claimed as a dependent, he/she doesn't count in the family count (i.e. - number of people in the family) in regard to the subsidy? If there were two adults and one 21 year old and a 17 year old in the household, the family count would actually only be three. Is that correct?

So wouldn't it be better for the 21 year old to apply for coverage individually especially if his/her income is fairly low?

Yes, in your example above, there are 3 in the household (the 2 adult parents and the 17 year old). The 21 year old who is NOT claimed as a dependent on the tax return files his own tax return, and files for his own subsidy. Since it's likely he will get a subsidy, then he will probably also apply for his own health insurance coverage rather than going under Mom & Dad's.

 

[stuy119]

So we have to know tax code to advise some of these people. Great, no opportunity for an E&O claim there.

(That was sarcasm, folks.)

 

[Ann H]

So we have to know tax code to advise some of these people. Great, no opportunity for an E&O claim there.

(That was sarcasm, folks.)

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