1095-A liability and income from a partial Roth Conversion

[scotttiger]

I had my return rejected when I filed because I left off the 1095-A document. This is the Health Insurance Marketplace document.

I received an ACA healthcare plan through a state marketplace since I was unemployed, and our household income was so low last year.

At the end of the year, realizing that we had a huge gap to get us to ~$89K, where the tax rate jumps from 12% to 22%, we made IRA conversions to Roth's, thinking that this would NOT be counted as income since the money never actually touches our day-to-day bank account; the cash stays in "Retirement Space."

However, it IS apparently counted as income. And so the ACA subsidy was clawed back. And we have a HUGE liability.

Is there any work-around to prevent this from being marked as actual "income" and avoid the 1095-A induced heartburn? I am fine paying tax on the conversion - those are the rules - but to have it be counted as money we could use in our daily budgeting is hitting hard.

Any ideas, Tax Experts?

[Vanessa A · Accepted solution]

There is no loophole to make the conversion not count as part of your Modified Adjusted Gross Income.

The thing you can do, if you are having to pay back a large amount, is apply for a payment plan to not have to pay it all at once. You can click here to visit the IRS website and apply for a payment plan. 

[scotttiger]

Thank you, Vanessa

Suspected as much, but wanted to ask.

Thought it was a brilliant idea to convert at a lower rate.

Not so sure now.