Did my Roth cash-out be the reason my income went so high that I have to pay back all the ACA subsidy? (Plz see "more details" section)

[pro888]

I'm 64, MFJ. What happened was the company holding my IRA rolled it over to a Roth, then cashed it out.  I thought cashing out from Roth made a tax difference, (that's what the cust rep told me who rolled it! ).

Now I have 2 months subsidy to payback, but we are too poor in 2017 to find this money. It's all gone. {Wife on SSDI & can't work. Has untreatable, terminal (soon) disease. I can't work cause can't drive due to frequent black-outs, & Doc's can't find cause. Her SSDI is $1982 but monthly expenses are $4,000 +or-.}

I read the work arounds, but not comfortable with my skill level. I know it's not right but can I just inflate the deductibles on the BC/BS Cobra we had for 10 months, to make up for the ACA $ I must payback?  My taxable income after all deductions is 0% (or $0?) so far.  Medical deductions are very, very high.

Please help ASAP. Thank you so much.

[TaxGuyBill · Accepted solution]

If you converted a Traditional IRA to a Roth IRA, that is income on your tax return.  That is also income for purposes of the Premium Tax Credit ("ACA subsidy").  So yes, it is quite possible that IRA conversion increased your income to disqualify you for the credit.  If you look at Line 3 of Form 8962, that shows your Household Income for purposes of the Premium Tax Credit.

You can try filing as Married Filing Separately.  When you do that, 50% of the 1095-A gets allocated to each tax return (enter the full amount of the 1095-A, and then on the following screen say it was shared with somebody that is not on your tax return).

Although you will still need to repay some of the Advance credit, in some cases the amount you need to repay will be reduced.  However, filing as Married Filing Separately often results in higher income taxes, so you may want to test it out both ways to see what is the best result.

In the event you are self employed, you may be able to contribute to a SEP (retirement account) by October 16th to reduce your income.