MAGI for ACA

[teachercaren01]

I'm late finishing up my 2019 taxes.  But that's not my real problem.  For 2019, I had a marketplace health policy (ACA) through Covered California, with a generous subsidy.  During 2019, I received an insurance settlement that covered property damage and emotional distress.  It was all reported to me on line 3 of a 1099-misc.  This is taxable income by law.  That is not the problem.

The problem is that according to publicly-available documents (see reference below) from both healthcare.gov and Covered California "Court awards/judgments/settlements for personal injury or sickness/emotional distress and other compensatory property damages"  are NOT TO BE COUNTED when computing the Premium Tax Credit.  YES THIS IS DIFFERENT FROM THE TAXABILITY TREATMENT!  (As a matter of fact, both documents show a whole bunch of items that are not to be counted into MAGI for ACA).  Yet when I enter the 1099 in Turbo Tax, the whole amount just flows to the MAGI on form 8962, and turbotax IS counting it towards MAGI, showing that I owe back thousands of $ of APTC.   I don't see how to get this settlement deducted out of the ACA Magi in TurboTax.  Actually, I don't see all of these exceptions in the IRS instructions either.  It's as if the IRS designed the forms without including all the items that can be deducted from Form 8962 ACA MAGI as the healthcare agencies declared.  Any thoughts?

https://www.dhcs.ca.gov/services/medi-cal/eligibility/Documents/Co-OPS-Sup/Income_Deductions_Chart_0...

[Critter-3]

Where did you enter the 1099 income to start with ?  Where on the return is it showing up ?  Sch 1 ? 

[Critter-3]

Is all of it non taxable ?

IRS Regulations

According to the IRS, any lawsuit settlement proceeds that a court awards for physical illness or injury are non-taxable. This includes wrongful death settlements, since the damages are imposed due to a court’s finding that a third party is responsible for the physical illness or injury that resulted in death. To qualify for this exception, the settlement must be compensatory, meaning that it must be a form of compensation for the pain and suffering caused in the case.

Since compensatory proceeds are non-taxable, they have no impact on a federal tax return. However, if there are any additional proceeds that are awarded such as punitive damages, payments for emotional distress, or awards for lost wages, those payments are considered income and are subject to income tax. Punitive damages are additional financial awards that a court may give to the family of a deceased or injured person in cases where the company or individual responsible for the death showed gross neglect or disregard.

https://ttlc.intuit.com/replies/7449321

[teachercaren01]

Thanks for taking the time.

Let me repeat the problem.  The law is different for whether settlement proceeds are taxable and whether they count for MAGI on Form 8962.  TurboTax, and for that matter, the IRS, don't seem to integrate this issue into the tax forms.  This is probably NOT just a TurboTax issue.

To answer your question, I entered the 1099 info using the step-by-step method.  For income tax purposes, TurboTax correctly carries this right through to schedule 1 and onto the 1040.  The problem is that the 8962 form then just takes the AGI from the 1040, allows just a couple of internal additions and subtractions for social security, tax-free interest, and foreign income exclusion --- and puts that figure in as MAGI on form 8962.

But that's not the way it's supposed to work.  That are many other things that are supposed to be deductible from form 1040 AGI before coming up with form 8962 MAGI, and there doesn't seem to be any way to do it.  Thanks.

[tbrown21]

This is from healthcare.gov. your award is taxable and included in ACA

Your MAGI is the total of the following for each member of your household who’s required to file a tax return:

• Your adjusted gross income (AGI) on your federal tax return
• Excluded foreign income
• Nontaxable Social Security benefits (including tier 1 railroad retirement benefits)
• Tax-exempt interest

• Income type Include as income:  Federal Taxable Wages (from your job). Tips Self-employment income, Unemployment compensation, Social Security, Social Security Disability Income (SSDI), Retirement or pension Income, Alimony, Child support, Capital gains, Investment income, Rental and royalty income, Excluded (untaxed),  Economic Impact/Stimulus Payments (come from the IRS as a result of the COVID-19 emergency). Gifts, Supplemental Security Income (SSI), Veterans’ disability payments, Worker’s Compensation, Proceeds from loans (like student loans, home equity loans, or bank loans)

[AmeliesUncle]

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@teachercaren01 wrote:

 YES THIS IS DIFFERENT FROM THE TAXABILITY TREATMENT! 

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No, it is not.  If it is taxable, it DOES count as income for the Premium Tax Credit.  That is what the law says. 

You also said "many other things that are supposed to be deductible from form 1040 AGI before coming up with form 8962 MAGI".  That is not true.  The only thing the law adjusts your AGI for the Premium Tax Credit is (1) tax-exempt interest, (2) non-taxable Social Security and (3) excluded Foreign Earned Income.

Your citation and link is regarding non-taxable situations, which means it does not affect the Premium Tax Credit.

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@teachercaren01 wrote:

I received an insurance settlement that covered property damage and emotional distress. 

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Just because it is on a 1099 does not necessarily mean it is taxable.  Compensation to repair property damage is not taxable.  As for the emotional distress, that is probably taxable.  It is taxable unless it comes from, or causes, physical injury or sickness.

https://www.irs.gov/pub/irs-pdf/p4345.pdf