My sister in law has recently lost her husband. The three kids are receiving social security income until the age of 18, that would of been paid to their father. When we are calculating income for my sister in law for AHC do we include the kids’ social security benefits? They are all minors and she claims them on her taxes. However, she currently has no personal income but starting a job shortly. So calculating what her income for 2014 will be tough. Do we calculate both her potential job earnings for 2014 and the kids SS income? Or just the potential job earnings since SS income is to the kids?
Dear Georgia Peach,
The answer, according to the IRS, is: For purposes of the premium tax credit, your household income is your modified adjusted gross income plus that of every other individual in your family for whom you can properly claim a personal exemption deduction and who is required to file a federal income tax return. (See IRS publication Questions and Answers on the Premium Tax Credit.)
Since the children do not have to file a tax return, their Social Security survivor benefits do not count toward the household income. Because she lives in Georgia – where there is no Medicaid “expansion” – she needs to earn at least $23,550 at her new job. (Or, I should say, that is what your estimate needs to be when she applies for subsidies.) That will put her household of four people right at 100% of Federal Poverty, and qualify her for health insurance subsidies. If she earns less than that, she will fall into the gap between Medicaid and private health insurance subsidies.
There is some debate about whether the IRS will go after people who earn less than 100% of Federal Poverty, who get subsidies that they did not qualify for – the people who fall into the gap, in other words. I do not know of any adviser telling clients to fudge their income estimate and hope the IRS decides not to enforce the rule. Technically, the “gap people” would have received a government benefit that they should not have and the government would have every right to recoup it.
That said, it’s important that you have confidence that she will earn at least enough to put them at 100% of Federal Poverty. If she decides not to enroll, she would most likely escape the tax penalty. She would avoid it by having income less than 100% of Federal Poverty, or by having the least expensive plan cost more than 9.5% of her household income.