We are over the healthcare.gov income limit by $400 for tax year 2017. What can we do now for 2017 to reduce our reported income so we do not have to pay the penalty.

[MarilynG · Accepted solution]

Here's more info on that:

Is there a way to lower the amount of tax credit I have to pay back?

If you're eligible to fund a traditional individual retirement account (IRA) and do so before April 15, the contributions you make may lower your income so that you do not have to pay back some (or all) of the advance tax credit you received.

Here's how: Making an IRA contribution will count toward your 2017 taxes and reduce your income, specifically your modified adjusted gross income (MAGI), which determines the actual premium tax credit you qualify for.

Depending on how much tax credit you received in advance, making a $1,000 contribution to a traditional IRA could result in a tax savings of several times more than that because of caps on repayment that are in place for different income thresholds.

Here's an example:

Jessica is married and bought a health insurance plan through her state Marketplace in January of 2017. She qualified for a premium tax credit when she signed up based on what she estimated her 2017 income would be. When she does her 2017 taxes with TurboTax, her income is calculated to be $64,021 for 2017. After she enters the details of her 1095-A, she finds out that her income is above the threshold to receive the premium tax credit. This means she has to pay back all of the tax credit she received in advance as a discount on her health insurance premiums during the year. She decides to contribute a $1,000 to a traditional IRA. This lowers her income to $63,021 and puts her below the threshold needed to qualify for the tax credit and within a repayment cap, which lowers the amount she has to pay back.

Here's how to check if you're eligible to fund a traditional IRA:

1. Go to Federal Taxes, then Deductions & Credits

2. Select "I'll choose what I work on"

3. Scroll down to Retirement and Investments and start Traditional and Roth IRA Contributions.

4. Check the person who wants to contribute to a traditional IRA.

5. Select Yes when asked if you contributed to a traditional IRA.

6. Answer the question about Repayment of a Retirement Distribution.

7. Enter an amount to contribute and select Continue.

8. Go back to Health Insurance and continue until you reach the screen that says "Based on your info..." and check if the IRA contribution lowered your income enough to lower the premium tax credit amount you have to pay back.