I’ve written about the collision between Workers’ Compensation and Social Security Disability Income, and its knock-on effect on income tax. See my blogpost “Public Service Announcement,” 1/25/21.

Today Judge Nega has an off-the-bencher about the collision between Social Security and the Affordable Care Act, and the inevitable knock-on effect aforesaid.

Here’s Carmen P. Argenziano & Virginia A. Argenziano, Docket No. 18782-19S, filed 4/5/21. It’s Virginia’s problem. Both Carmen and Virginia got Advance Premium Tax Credits for their ACA cover through the FL marketplace; Carmen took Virginia out of the marketplace after the first quarter of year at issue, but stayed in himself.

At some point that year, Virginia got $166K from the Social Security Administration. Except $35K was taken therefrom by her trusty attorney. But their MFJ 1040 omitted Form 8962, reconciling their income with the APTCs they got.

IRS did not omit sending a SNOD to Carmen and Virginia. And Carmen and Virginia did not omit a timely petition.

With the taxable share of the $166K reckoned in, Carmen and Virginia were miles over the 400% poverty line, thus their APTC was zero, not the $10K they claimed.

Carmen and Virginia want the $35K her trusty attorney got taken out of the AGI number.

“In general, income is taxed to the person earning it, even if the right to receive the income is contractually assigned to another person before it is earned. Under this principle, the amount of benefits reported as attorney fees…is considered an amount received by petitioners, even though the SSA paid an attorney the reported fee amount. Petitioners received the benefit from these funds in the form of payment for services required to obtain petitioner wife’s benefits.” Transcript, at pp. 7-8. (Citations omitted).

I make that a 22% contingency fee; par for the course. Cap is 25%; see CFR §416.1530(b).

And the back-end catch-up when actual year’s AGI meets estimated wrong-foots Carmen and Virginia, as it has so many others.

“Petitioners advance they had no knowledge that they would receive back pay from the SSA in the form of a lump-sum payment at the time they were enrolling in the marketplace and that the marketplace instructed them to consider only expected income for [year at issue] when applying for insurance coverage.” Transcript, at p. 8.

The problem is that AGI is increased by whatever Social Security benefits were excluded pursuant to a Section 86(e) election to exclude current year payments for prior years’ benefits.

See my blogpost, “Oh MAGI, I Wish I’d Never Seen Your Face,” 3/11/19. The excluded $166K is the culprit.

“Petitioners’ remaining contentions involve their rights as taxpayers and the alleged lack of accurate information provided by the ACA marketplace application process. Although we are sympathetic to petitioners’ situation, we are not a court of equity, and we cannot ignore the law to achieve an equitable end. The statute is clear: excess APTCs are treated as an increase in the individual’s income tax liability for that taxable year. Sec. 36B(f)(2)(A). Petitioners received APTCs to which they were ultimately not entitled as a result of the lump-sum payment from the SSA.” Transcript, at pp. 11-12. (Citations omitted).

Judge Nega doesn’t state who prepared Carmen’s and Virginia’s return. As chops aren’t mentioned, perhaps IRS waived them. But if there were a paid preparer, that person has already gotten The Phone Call.