repayment of disability insurance affecting marketplace account

[ththshmhjh]

I received payments from a disability insurance company that was non-taxable.  They required that I file for SS disability.  It took over a year but I was approved and received a back payment.  Turbo Tax says I owe taxes even though it's showing my tax liability as $0.  I did the lump sum payment option because part of the back payment was for 2022.  My adjusted gross income is not showing the SS money.  I did try the right to repayment option but that didn't affect anything.  I believe the problem is that I had a marketplace insurance account which I received credits for.  For marketplace insurance you have to report all SS money whether it's taxable or not.  I believe that the full amount of SS money is being used to figure my marketplace credit.  Is there a way to claim the repayment so that it reduces the amount being used for the marketplace account? 

[RobertB4444]

No.  Sorry.  The marketplace pays a part of your insurance cost based on how much money you are expected to earn in any given year.  You had a windfall for 2023 which kicked your (non-taxable) income up high enough that the system says that you should have contributed more for your health insurance this year.  

@ththshmhjh 

[ththshmhjh]

Wow, so there is no way to claim the repayment of income?  The SS money was $31000 but we had to pay the disability insurance for their offset which was $30000.  We only got about $1000 of that money! 

[RobertB4444]

Then put that offset into the amount on your return by adjusting the amount that you received.  That only kicks up your nontaxable income by $1000.  Make sure that you retain all the paperwork showing what you received and what you transferred to the disability insurance so that if you receive a letter about it you can show the IRS why you entered what you entered.

@ththshmhjh 

[ththshmhjh]

I have a SSA-1099 showing the full amount.  How do I adjust the amount received?

[RobertB4444]

You're going to change the amount that you are entering by $30,000.  And then you're going to prepare yourself to make the argument that that money was not received by you in 2023 so did not have to be reported.  

@ththshmhjh 

[ththshmhjh]

Change it where I entered the 1099?  That seems like it would raise red flags everywhere.  Can I not claim it as a credit on Schedule 3 or some other form?   I've looked at the form but didn't see anything that applied except for a misc credit.  Can I do that and would it make a difference?  I am sure to get an audit if I just change the amount reported on the 1099.

[RobertB4444]

There is no place for you to claim a deduction on your social security income.  Changing this number absolutely will raise red flags.  That is why I am saying that you need to prepare your argument.  You will receive a letter from the IRS asking why you changed the amount on the 1099.  You will reply that you didn't receive those funds and that they were paid to the disability insurance.  Then it will be up to the IRS as to whether you are allowed to take the deduction.

If you prefer not to wait for the letter then the alternative is to change the amount on the 1099 and then attach form 8275 to your tax return.  If you do this you will have to mail in the return.  You can attach any documents showing the fact that the disability insurance received the money and not you and see if the IRS allows the deduction.

If they do not you will have to pay the amount that is showing on the return right now plus penalties and interest.  If they do then you will not owe anything.

@ththshmhjh 

[ththshmhjh]

The amount of the SS 1099 is apparently not affecting my federal tax owed.  Turbo Tax shows my tax liability as $0.  Turbo Tax is showing our income as only our dividends from our investments.  It's only showing we owe because of the marketplace insurance policy, I believe.  Is there anywhere to claim the reduction of SS on form 8962 or any other form related to the marketplace policy?  Thank you for your patience and information!

[DawnC]

The reduced social security is already accounted for on your return.   That income is non-taxable, you can't reduce it any further.   You are having to pay back premium tax credits from your 1095-A.   

This tax credit works differently than most.  The premium tax credit was available immediately when you enrolled in a plan through the Marketplace. It worked like a discount so you could get help paying for coverage throughout the year rather than having to wait until you filed your 2023 taxes.  Payments of the premium tax credit went directly to the insurance company to pay a share of the monthly health insurance premiums charged to you.  The amount was calculated based on what he estimated your 2023 income would be, along with how many people your plan needed to cover and where you lived.

Now that he is reporting your actual 2023 income, ZIP code, and family size, we used this info to calculate the discount he should've received throughout the year, and made the necessary adjustment.   

[ththshmhjh]

I'm confused.  Who is he?  You said that "Now that he is reporting your actual 2023 income, ZIP code, and family size, we used this info to calculate the discount he should've received throughout the year, and made the necessary adjustment. " So who is he and how did he report our actual income, zip code and family size and to whom and who made the adjustment?

[RobertB4444]

He is a typo.  Change 'he' to 'you'.  YOU estimated what your income would be when you signed up for the marketplace.  The premiums were based on this estimate.

@ththshmhjh 

[Gwenevere27]

I have a similar problem. My SSDI back pay was for 2020-2023. My SSDI income is not taxable and my adjusted gross income is negative due to my husband’s business losses. However, I’m being charged back for the healthcare marketplace premiums of over $8,000. How can that be right? All of the back pay went to pay off loans and credit cards that were helping us get by until I won my case.

[RobertB4444]

The healthcare marketplace bases your premiums on what you predict your income will be.  Not always easy to do that - especially in a case like yours where you can't be sure if you're going to finally get the payment that you've been expecting.  

When they are taking your premiums into account they don't just add up taxable income - they add up all of the income that you receive and can spend.  They don't have any idea that you have loans or credit cards to pay off.  They only know that you got a bunch of money.  

You need to contact them and explain your situation and see if you can get a waiver.  You are not the first person to be put in this situation.

@Gwenevere27 

[ththshmhjh]

I would love to know if anyone comes up with a solution to this.  I have called the IRS help line and talked to 7 different departments, I have talked to the marketplace help line and I have gone to a tax expert all with no solution.  I have called, researched and googled until I know more about taxes than most people.  I am out of options and time so will have to pay the $960 and just do my taxes before the 15th.  According to the last guy I talked with at the IRS there is no way to reduce the amount of SS income for marketplace.  Guess I'll write my congressman...