Obamacare Advanced Premium Tax Credit Repayment Limitation

aptc repayment limitation

What if somebody gave you an interest-free loan for a year? Say, the government, maybe. And then instead of requiring you pay back all of the loan, they only wanted half?

This situation actually exists within the Affordable Care Act / Obamacare in some circumstances. Throughout the year, Premium Tax Credits are paid directly to the insurance company based on our estimated income for the year. Then come tax filing season, we reconcile any differences – if our actual income is greater than estimated, we repay the excess on the advanced credits.

For the self-employed, seasonal workers, and retirees living off variable investment income, estimating income accurately can be next to impossible. As such, to provide some protection against unexpectedly large tax bills, as long as total income is less than 400% of the Federal Poverty Level (FPL) the amount of repayment is limited.

And those limits can have profound implications.

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Twenty Pounds of Pasta

In Spring of the last 3 years I have stepped off a plane in Europe, wearing stylish skinny jeans and a classic neckline T-shirt. 3 or 4 months later, I was sporting a budding double chin and elastic waistline “athletic” shorts.

Upon returning “home” I would slowly shed my substantial souvenir, slip back into my favorite jeans, and board another plane to carb heaven.

It is the holidays… perhaps you can relate.

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Adding Gold to the Portfolio

People add gold to their investment portfolio for all kinds of reasons… it’s pretty, they accidentally read Zero Hedge, their Mom suggested it, or they plan on trading it for food after the apocalypse.

Those are all obviously terrible reasons.

This is true in part because there is really only one good reason to own any gold at all. Dentistry.

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Obamacare, Expats, and Limitations on Visits Home

Welcome Home?

Welcome Home? (photo credit)

US citizens living abroad are not required to purchase health insurance as outlined in the Affordable Care Act, often affectionately referred to as Obamacare.

The definition of “living abroad” is clear; nomads such as ourselves are limited to visiting the US for no more than 35 days every 12-months, else we are required to purchase minimum essential care insurance policies on a Health Exchange.

Were we actually in the US, we would do just that. But these policies provide no coverage for routine care Internationally, let alone across multiple States, which makes them effectively useless for our lifestyle. Thus the purpose of an exemption.

But limiting visits to the US to 35 days every 12 months seems awfully restrictive. If I wanted limitations in life, I would just get a job. So what is going to happen when we visit the US later this year for 2 to 3 months?

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Obamacare Optimization vs Tax Minimization

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Balance (photo credit)

Optimizing Obamacare vs Minimizing Taxes presents a classic trade-off.

On the one hand, it would be nice to maximize Obamacare subsidies.  Easy! Simply don’t generate a lot of income.

On the other hand, we want to minimize taxes. We do this by offsetting income with standard deductions and personal exemptions, and generating (a large amount of) income that has preferential tax treatment.

But for the ACA, there is no preferential tax treatment.  There is no standard deduction, no personal exemptions.

In this post, I explore how to navigate this complex environment in order to optimize health insurance premiums, out of pocket medical expenses, and taxes.  Can we find the balance?

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Obamacare Optimization in Early Retirement

Image-Affordable-Care-Act-logo-genericIn all likelihood, an early retiree in the United States is going to purchase ACA (Obamacare) compliant Health Insurance on the Federal or a State Health Insurance Marketplace.

Even though the ACA has provided common standards, Health Insurance is still a complex topic with numerous trade-offs. Coverage levels and premiums vary.  Every insurance company has a different approach to cost sharing.  Each State has a slightly different implementation, maybe a different website, and wildly different prices.

Subsidies may pay nearly all of your premium, or they may cover nothing.  It isn’t always clear which will apply until after the fact.  As a result, some will get an extra large tax bill at the end of the year, while others will pay too much each month.  They may even provide a disincentive to earn a higher income.

But much like the Income Tax, those who understand the the system can optimize their income and investments.  Knowledge is power.  Optimizing Obamacare starts with understanding the system.  Then we can make choices to minimize costs and maximize coverage.

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