How is inheritance income treated when calculating magi for 8962 as related to the affordable care act and subsidies?

[dabeckett52]

I know that inheritance income is not considered taxable income for fed as well as most states income. When reviewing magi and form 8962, it appears inheritance income is not added back in when calculating MAGI for Form 8962 for the Premium Tax Credit related to the Affordable Care Act, but I would like to verify that this is the case.  dab

[DoninGA · Accepted solution]

See this website for what is included for MAGI under the ACA - http://laborcenter.berkeley.edu/pdf/2013/MAGI_summary13.pdf

[TaxGuyBill]

As Don's link points out, a non-taxable inheritance does NOT affect the Premium Tax Credit on Form 8962.

[Turtle2525]

My wife inherited a variable annuity… Eventually, when the money is withdrawn, it will be taxable. I am having difficulty sorting out whether or not it will affect my my ACA PTC.  On the one hand, it appears that an inheritance does not affect the PTC… On the other hand, since it will be taxable,, it would appear that it should be added into the MAGI, which in turn, would impact our ACA eligibility.  My accountant's opinion is - 

"My understanding is this – when you inherited the asset ( the annuity ) that is not taxable and therefore not MAGI– BUT when you cash it in it becomes taxable  income and then is part of MAGI. 2 different events !"

I would appreciate explanation & clarification..  THX !

[dmertz]

Unless the variable annuity is a qualified annuity held withing a Roth IRA, gains in the variable annuity (amounts in excess of the investment in the contract) are taxable when distributed and will add to your MAGI for ACA.  Annuities do not get a step-up in basis.

[Critter]

Your accountant is correct ... until you take distributions from the annuity it is not taxable ... so be very careful when you decide to take some money out ... talk to the plan administrator to see what your options are ... how fast and when you will need to make distributions depends on too many factors that only they can answer this question.