Complicated Question - RE: Exchanges and Marital Separation

dgoldenz

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Virginia
A long-time client just called me and said she moved from VA to CO, now separated from husband but not legally divorced. They have a subsidy on the VA plan, but it does not cover anything in CO so she needs to get a CO policy for herself. She understands that a joint tax return has to be filed as long as they aren't legally divorced. VA uses HC.gov and CO has its own state-based exchange. Anyone have any idea how the subsidy works when one state uses the federal exchange and one state has its own state-based one? Never come across this type of situation before.
 
that a joint tax return has to be filed as long as they aren't legally divorced.

I know that it was answered somewhere before. It is not the case that you have to file jointly if you are separated. According to IRS Publication 504;

Unmarried persons. You are unmarried for the whole year if either of the following applies.

  • You have obtained a final decree of divorce or separate maintenance by the last day of your tax year. You must follow your state law to determine if you are divorced or legally separated.
Exception. If you and your spouse obtain a divorce in one year for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intend to remarry each other and do so in the next tax year, you and your spouse must file as married individuals.

  • You have obtained a decree of annulment, which holds that no valid marriage ever existed. You must file amended returns (Form 1040X, Amended U.S. Individual Income Tax Return) for all tax years affected by the annulment that are not closed by the statute of limitations. The statute of limitations generally does not end until 3 years (including extensions) after the date you file your original return or within 2 years after the date you pay the tax. On the amended return you will change your filing status to single or, if you meet certain requirements, head of household.

There are instances where you are technically married, but for IRS single. The best would be to consult her CPA, or a tax lawyer.
 
They aren't legally separated, they just aren't living together. No legal documents have been filed.

If you live in separate households for the minimum last 6 months of the year, you can file taxes as single or head of the household. But again I would as their CPA.
 
Dgoldenz, I don't know the answer to your question, because I have never worked with a state-based exchange.

But for the other issue mentioned above, I have some input. Clients, and even tax advisors have brought up that in certain situations, the IRS allows you to file as a single even though you are married. However, that is not relevant to subsidies. The subsidy laws don't ask if the IRS allows you to use a tax-filing status of single. They just ask if you are married, and if you are filing "married joint". And they say that a married person cannot get a subsidy unless they file married joint, except in limited situations like domestic abuse, missing spouse, or sometimes a tax-filing status of head of household with qualifying dependent.

Now, back to Dgoldenz's original question, I understand that your client is still married, and that you understand they still qualify for a subsidy because they will file taxes as married joint, but you don't know the process for rewriting one policy in CO state-based exchange, and changing the other policy on the FFM. If it was all with the FFM, it would be easier, even though there are two policies. But with 2 exchanges, it will appear that a married couple in CO is only insuring one person, and a married couple in another state is only insuring one person. Probably neither would get a advanced subsidy that way. Is it possible for you to find out from CO exchange if they run into this a lot and can coordinate with the FFM on it? If not, I would suggest enrolling the CO first (with full financial disclosure, but taking no ADVANCE of the subsidy), and then terminating her off the old policy (with no change in household income, even though the subsidy is going to be reduced), then having the Accountant reconcile the difference at tax time.
 

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