Roth conversion and 1095-A form

[lisaannsala]

I've been working on 2019 taxes. Gross income was around $26,000 and we received substantial Health Care Tax Credit (1095-A).  Also, we decided to convert money from a traditional IRA to a Roth IRA. When I entered the Roth conversion amount, all of our HCTC went away and our tax bill nearly quadrupled. 

Prior to adding the 1095-A info, federal tax was around $8,500. after adding the 1095-A info federal tax increased to around $32,500.

Is this a TurboTax bug or is the IRS not allowing a HCTC and a conversion to a Roth IRA in the same year?  It appears the Roth conversion funds are being counted as income.  Which they aren't

[macuser_22]

What makes you think a Roth conversion is not taxable - it is.    Converting a before tax retirement account  to an after-tax retirement account always require that the tax be paid.    Only if there was after-tax money in the first account would some or all the conversion not be taxable.

The 1095-A and 1099-R are not related in any way.  The difference is the tax on the conversion.

[lisaannsala]

I understand that the conversion from a traditional IRA to a Roth IRA is a taxable event. What isn't sensible is that TurboTax treated the amount converted, to income and negated the Health Care Tax Credit. 

[macuser_22]

Where do you see that?

The Premium  tax credit form form 8962 goes on the 1040 Schedule 3 line 9 and then on the 1040 line 18d to reduce the tax.   IRA conversion tax goes on the 1040 line 4b that of course will increase the tax that line 18b reduces.

[lisaannsala]

Thanks for you input.  

From what you are saying, I think TurboTax has a bug that is leading to my problem.  I am using the prompts in TurboTax to input my information and not seeing  the IRS 1040 lines you refer to and tax credit form 8962. It appears TurboTax is not my tax filing option this year.  Thanks again.

[macuser_22]

There is no bug - it works fine if you entered all the 1095-A information in the 1099-R in the proper sections and answered the questions.

[lisaannsala]

Well, perhaps it's working from your platform, but it isn't working properly from mine. At least I'm assuming that funds transferred to a Roth from a Traditional IRA doesn't cancel the HCTC listed on the 1095-A. 

And yes, I'm answering the questions properly.  Are you an intuit programmer or tax consultant?

I'd love to get to the bottom of this problem and use the software I have purchased. Thanks for your input.

[macuser_22]

Exactly where on the 1040 form are you seeing this change?  

Like I said the Premium tax credit has nothing to do with the tax on a Roth conversion.

The Premium tax credit adds to your refund and the IRA conversion subtracts from the refund.  Your lack of details of just where you see the problem makes it difficult to understand just what you are looking at.

And no, I am not an Intuit employee., but have over 50 years of tax experience.

[fanfare · Accepted solution]

You premium tax credit is based on your Modified AGI  which is your AGI plus other items. There is no reduction for amount of Roth conversion.

So your modified AGI went way up.

Evidently this was enough to deny or reduce your Premium Tax Credit.

That's Obamacare.

Using some other tax software won't help.

[fanfare]

In any case, final tax bill  of $32,000 can't be right, can it ??.

What is a" substantial Health Care Tax Credit " ?

[lisaannsala]

First of, thank you for your input.  I am relieved that what I'm seeing happen in the TurboTax Deluxe software, isn't what should be happening by your interpretation of  IRS rules. 

I have enter the information in the format offered by TurboTax, so I don't see the 1040 line identification information you refer to.  I've entered the Wages and income section, which includes retirement.  In this section I entered the 1099R information for the converted Roth amount. I answered the questions about rollover, no cash, etc. The calculated tax owed at this point is what I expect it to be.  Then I go to the deductions and credit section and enter the 1095-A information in the appropriate section. After  I enter this information, the federal tax owed calculated is nearly 4 times the amount it was before entering the Health Care Tax Credit amount.  The software calculations seem to be treating the Roth conversion as income because HCTC tax benefit goes away.

[macuser_22]

The Roth conversion *is* income and as fanfair said will also add to your AGI (that I over looked) and will also reduce the amount of Health Care Credit in addition to adding to the additional tax.  Do not pay any attention to the amount of tax or refund until ALL income and deductions are entered - the last thing entered can change everything.  You need to review the 8962 form to see what the actual Health  Credit is with the additional AGI because of the Roth conversion.

[lisaannsala]

Looks like we unwittingly walked into the perfect storm. Thanks for your input.

[AmeliesUncle]

As a sort of side topic, you called the credit for the 1095-A the "Health Coverage Tax Credit" (HCTC).  That is NOT correct.   The 1095-A gives you the "Premium Tax Credit".

Those are two completely different things.  So if the program asks you about the HCTC, you need to say NO.

[lisaannsala]

Thank you - I see that now that you pointed that out.