Does Money In 401k Count As Income For Obamacare
Paying medical bills with 401(k) triggers Obamacare debt
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Dear Revenue enhancement Talk,
I was laid off in January of 2015. I went on unemployment while looking for a new job. I was 64 years old at the time. My girlfriend became unemployed due to stage 4 ovarian cancer during this fourth dimension. She lost her health care from her task, but was able to become Affordable Intendance Deed (ACA) insurance with discounts based on her loss of income to assistance cover the cost of chemo. When her savings was gone, she borrowed from her 401(g) to pay bills.
We got married in Feb. When we filed our taxes for 2015, we were told that even though my wife paid the taxes on her 401(chiliad) distribution, information technology was also considered income. ACA wanted her health care discounts back due to the 401(k) distribution. We now owe the IRS $4,000 for discounts they say she did not deserve.
I realize that you take to let ACA know your income to get affordable health intendance discounts. I did not know that the 401(k) distribution, later on paying the taxes, would take to exist reported as boosted income. Does this seem off-white?
— Ralph
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Dear Ralph,
Showtime off, I must say how deeply sad I am for your unfortunate set of events. On a personal note, I do wish that there were some IRS exception for extenuating circumstances such equally yours.
But because the 401(k) income is included as gross income on your taxation return, information technology is used in calculating your modified adjusted gross income, or MAGI. The MAGI, in turn, is a cistron in the amount of premium taxation credit that you may take to pay dorsum if you get over certain thresholds.
IRS Publication 5187 conspicuously outlines the rules as they chronicle to the Affordable Care Act, and the Premium Taxation Credit specifically. Your household income is calculated to exist that of y'all, the taxpayer, as well as your spouse. IRS Grade 8962, Premium Revenue enhancement Credit, is used to calculate what amount, if any, you will have to repay. On the course, there is a line that includes the total health intendance premium tax credit received by y'all and your spouse also as your MAGI. If the MAGI is greater than 400% of the "poverty line," which is currently $15,730 in your item situation, then you have to pay back some or all of the advance payment of premium taxation credit that was received.
Unfortunately, your income must accept put you over this threshold. There is however hope, though. You should certainly not be afraid of contacting the IRS directly. Their telephone number is 1 (800) 829-1040. Yous can explicate your specific circumstances and opt for an installment organization with them to pay what you tin every bit you become, or you tin piece of work out what is referred to every bit an Offering in Compromise. An Offer in Compromise allows y'all to negotiate a settlement with the IRS that is less than the full owed to clear the debt.
In this case, you should telephone call the IRS and explain your situation, and figure out what amount they may exist willing to have, as $4,000 does audio very high given that y'all undoubtedly accept high medical bills, were unemployed for part of the year, and are of retirement historic period.
Thanks for the keen question and all the best to you lot and your family in having this part of your life resolved.
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Source: https://www.bankrate.com/finance/taxes/repay-aca-discount-for-using-401k.aspx
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