Impact of tax deductions on ACA premium subsidy size

Understanding ACA Premium Subsidies and Tax Deductions

How Tax Deductions Impact Your ACA Premium Subsidy

Consulting a Certified Public Accountant (CPA)

If you’re looking to maximize your ACA premium subsidy, seek guidance from a licensed CPA specializing in tax preparation. A knowledgeable CPA can help you identify potential deductions and tax breaks that could lower your income for ACA purposes, resulting in larger premium subsidies.

American Rescue Plan and Subsidy Changes

The American Rescue Plan (ARP) has significantly altered subsidy regulations. Under ARP, premium subsidies are more substantial and extend beyond the 400% federal poverty level cap. This means that more individuals are now eligible for subsidies, depending on their circumstances. The Inflation Reduction Act further extends these provisions through 2025.

Eligibility and Enrollment

It’s crucial to understand that premium subsidies are only available on the exchange. Therefore, if you qualify for a subsidy, ensure that you enroll through the exchange during the open enrollment period, typically from November 1 to January 15.

Calculating Modified Adjusted Gross Income (MAGI)

ACA premium subsidies are based on MAGI, which is calculated differently from other income definitions. Lowering your MAGI can result in a larger premium subsidy, making it essential to consider various adjustments to reduce your MAGI.

Reducing MAGI through Contributions

Contributing to retirement plans, such as traditional IRAs or employer-sponsored 401(k) plans, can lower your MAGI. Self-employed individuals can benefit from setting up retirement plans like SEP IRAs or SIMPLE IRAs, which offer higher contribution limits.

Health Savings Accounts (HSAs) and Insurance Premiums

Contributions to HSAs and deductions for self-employed health insurance premiums can also lower your MAGI. These adjustments are crucial in qualifying for a premium subsidy and maximizing your ACA benefits.

Illustrative Example

Consider a married couple, both aged 55, with a combined income of $90,000. Despite exceeding the 400% FPL threshold, they are eligible for a premium subsidy. By making pre-tax contributions, such as to an HSA or retirement account, they can further increase their subsidy amount.

Read More of this Story at – 2024-03-22 22:40:15

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