In Which I Learn That My HSA and IRA Might Count Towards ACA Subsidy Eligibility

Photo credit: alkruse, CC BY 2.0.

The most important thing you need to know is that I’m meeting with a CPA on January 5 to discuss all of this.

The second most important thing you need to know is that I calculated all of those charts I made last week incorrectly.

Your modified adjusted gross income—the number that determines whether you get an Affordable Care Act subsidy—is calculated after you deduct HSA and IRA contributions.

Healthcare.gov did not mention this during my application process. The site told me to deduct business expenses from gross income and nothing else.

But according to MONEY, I should be able to deduct my HSA and my IRA contributions as well as my business expenses:

The easiest way to lower your liability if you made more than expected is to make an IRA or HSA contribution equal to the amount by which your income exceeded your estimates, says Lindsey Buchholz, tax lawyer at H&R Block. So for example, if you made $1,500 more than you thought you would, make a $1,500 contribution to your IRA or HSA.

“Liability” in this case refers to “having to pay back your health insurance subsidy because you earned more than you expected.”

Nobody told me this. I’m a little put out that my Seattle CPA didn’t mention it, because I did the math on my current income/expenses and adding a $5,500 IRA contribution should put me very close to subsidy eligibility for 2017. (I’m either going to be right over or right under the qualifying amount, so I’ll make sure to claim every business deduction I can.)

I know that I’m coming across as this person who’s trying to play tax games so she can save a little money on her health insurance, but I could save around $3,600 per year, so it’s worth figuring out how to do it. Also, if you think of them as “tax credits,” which is also what they’re called, it feels a little less like I’m trying to get out of paying a $548.48 monthly healthcare premium. It’s just… how people do their taxes. Right?

Anyway, I’m very excited to meet with my new CPA in January and have a very detailed conversation. If it turns out that I will very likely be eligible for a subsidy, I can go into Healthcare.gov and update my income information. (As far as I understand, they’ll accept income adjustments at any time; it doesn’t have to be during Open Enrollment.)

Also, here are some new charts. In these examples I claim the health insurance subsidy and, once my income hits $65,000, focus on maxing out my HSA and IRA before putting money into the “business expenses” pile.

Monthly

If I earn 50,000 55,000 60,000 65,000 70,000
Monthly 4,167 4,583 5,000 5,417 5,833
Monthly HSA (5 percent OR max) 208 229 250 290 290
Monthly IRA (5 percent OR max) 208 229 250 458 458
Monthly taxes (30 percent after HSA and IRA) 1,125 1,238 1,350 1,401 1,526
Monthly savings (5 percent) 208 229 250 271 292
Business expenses (all remaining pretax $ greater than $4,020) 0 105 480 648 1,065
Leftover 2,417 2,553 2,420 2,349 2,203
Personal expenses (leftover minus $1,500 overhead) 917 1,053 920 849 703

Annual

If I earn 50,000 55,000 60,000 65,000 70,000
Annual HSA (5 percent OR max) 2,500 2,750 3,000 3,480 3,480
Annual IRA (5 percent OR max) 2,500 2,750 3,000 5,500 5,500
Annual taxes (30 percent after HSA and IRA) 13,500 14,850 16,200 16,806 18,306
Annual savings (5 percent) 2,500 2,750 3,000 3,250 3,500
Business expenses (all remaining pretax $ greater than $48,240) 0 1,260 5,760 7,780 12,780
Leftover 29,000 30,640 29,040 28,184 26,434
Personal expenses (leftover minus $1,500 overhead) 11,000 12,640 11,040 10,184 8,434

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