Attorney-at-Law

THE 2% SOLUTION

In Uncategorized on 06/16/2020 at 16:53

The self-employed health insurance deduction provides the 2% solution for Nelson G. Abrego and Reina E. Abrego, 2020 T. C. Memo. 87, filed 6/16/20. It’s Nelson’s $662 of self-employment income that saves the day.

Although eligible for Medicare, Nelson chose to go for the Affordable Care Act premium tax credit and signed up for private insurance. And even though he had run a small tax prep business for twenty (count ‘em, twenty) years and testified he knew when returns were due, his MFJ return for the year at issue was almost a year late, with no explanation therefor.

Nelson’s and Reina’s MAGI put them just over the 400% Federal poverty line, so their APTC (the advance funding of their tax credit, paid to their insurer) got clawed back, plus late filing and substantial underpayment add-ons, in the SNOD.

Judge Elizabeth A (“Tex”) Copeland takes up the tale.

“The Commissioner has since conceded that the Abregos are entitled to a self-employed health insurance deduction of $662, which lowers their actual [year at issue] HHI to $62,670, or 398% of the FPL.” 2020 T. C. Memo. 87, at p. 6. “HHI” is household income, as computed per the Affordable Care Act. And FPL is the Federal Poverty Level, likewise defined.

But there will be excess credit to be clawed back, so Nelson and Reina won’t get off paying nothing but the monthly excess they’d already paid during the year. Judge Tex Copeland lays out in copious detail the method of calculation, which I cannot paraphrase better than she does her own self.

“In plain English, the amount of PTC a taxpayer is entitled to is calculated by comparing the premium for the plan the taxpayer selected to a PTC amount calculated against a benchmark plan premium. If the actual plan premium is less than the calculated PTC amount, then the PTC will cover the entire plan premium.” 2020 T. C. Memo. 87, at p. 12.

But the exact arithmetic I leave to Judge Tex Copeland and to you. In the end, the clawback is the $2500 maximum in Section 36B(f)(2)(B)(i) for those who slide under the 400% tag.

While I take no political position here regarding the Affordable Care Act (on which more than enough electrons have been seriously inconvenienced), the statute proves that a camel is a horse designed by Congress.

 

 

 

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