"Self-Employed Problem in 2014..."Over-estimating Income to Qualify?"

[LGilmore]

I'm a bit confused here over this discussion.

Are you saying the client can't purchase insurance or is it that they can't get the subsidy?

I don't know of any state that is refusing to insure a person who wants health insurance.

Now eligibility to collect a subsidy is a different story. Below the 12k threshold is usually Medicaid territory and I think your home state isn't participating in expanded Medicaid at this time. But what stops this person from just buying health insurance?

As I read this it brought to mind the old disability insurance gripes. "I want 10k a month in DI." "Well your tax return shows you only make $500 a month."
The client has to decide which tax breaks are more important to them. If they're going to write their business into the red, it may effect them elsewhere with other programs.

 

[Yagents]

No offense taken. I was saying in jest, and actually ended up having no time to follow through On the offer either.

It was tater who stirred the pot

 

[FLM2]

If a small business owner estimates his income above the subsidy level and winds up below the maximum clawback is capped at $300; For a couple, it's $600.

Self employment taxes of approximately $11500, the minimum amount needed for an individual to obtain a subsidy, is about $1600, or for the $16500 for a couple, it's about $2500, so the cost would be higher than paying the clawback.

Even though the clawback is less than the cost of the payroll taxes (income taxes are negligible at this level but there are longer term benefits to paying Social Security taxes (higher benefits at retirement) that could make the difference between the 2 smaller although almost no one would care about this, they would just want to spend less money this year.

I would never advocate purposely overestimating income to obtain a subsidy but when you are self employed there is always a degree of uncertainty involved.

At the same time, insurance agents shouldn't give tax advice, just read Ann H's signature and you will find several great reasons for this.

 

[Tkruger]

One thing I've not seen noted here is the fact that the clawback doesn't come into play if the income is below 100% FPL.

 

[FLM2]

One thing I've not seen noted here is the fact that the clawback doesn't come into play if the income is below 100% FPL.

I said that above, it's actually up to <200% FPL the maximum clawback is $300 individual, $600 family.

 

[Yagents]

Related article. Not good for those with documentation problems, and access to group plans:

Consumers Will Owe Uncle Sam If They Got Health Insurance Subsidies Mistakenly - Kaiser Health News

Can you imagine having to pay back money that you NEVER saw?

 

[houcoogster]

Related article. Not good for those with documentation problems, and access to group plans:

Consumers Will Owe Uncle Sam If They Got Health Insurance Subsidies Mistakenly - Kaiser Health News

Can you imagine having to pay back money that you NEVER saw?

Yet just one more reason folks need to use the free service of a highly knowledgeable and skilled agent.

 

[Ann H]

If a small business owner estimates his income above the subsidy level and winds up below the maximum clawback is capped at $300; For a couple, it's $600.

Self employment taxes of approximately $11500, the minimum amount needed for an individual to obtain a subsidy, is about $1600, or for the $16500 for a couple, it's about $2500, so the cost would be higher than paying the clawback.

Even though the clawback is less than the cost of the payroll taxes (income taxes are negligible at this level but there are longer term benefits to paying Social Security taxes (higher benefits at retirement) that could make the difference between the 2 smaller although almost no one would care about this, they would just want to spend less money this year.

I would never advocate purposely overestimating income to obtain a subsidy but when you are self employed there is always a degree of uncertainty involved.

At the same time, insurance agents shouldn't give tax advice, just read Ann H's signature and you will find several great reasons for this.

FLM2, I am impressed with your analysis. The payroll taxes on the income is an issue. An alternative would be to use unearned income (like interest, dividends, sale of an asset, rental property, etc.). So, you could max out the legitimate business expenses and thereby lower your payroll taxes, but still show a MAGI that is sufficient to keep yourself out of Medicaid, yet still in subsidy eligibility range.