Advice on ACA premium subsidy claw-back (tax-related too)

[OTG2017]

I'm looking for advice. I don't make a lot of money (retired) and am on Obamacare.  I received a nice subsidy in 2021.  Late last year, I heard that the IRS was removing the maximum income cliff on getting ACA (i.e, Obamacare) subsidies for 2021, so I took a withdrawal from my traditional IRA, thus increasing my "income".  To compound the problem, TurboTax had a bug in their program in December that made it look like I was still receiving my subsidy even with the IRA withdrawal. But by the time I filed my taxes in April, they fixed their software and it said that I would have to pay back all the subsidy I received in 2021.  I phoned the ACA help line, and they said that I should appeal to them.  So I put together all the paperwork and explained the situation and sent it off to the ACA.  About a month ago, I received a form letter from them saying that this is not the type of thing I can appeal to them.  Here's my question:  Who can I appeal to? I can't imagine that the one-time income of an IRA withdrawal should lower the ACA subsidy.

[GailL1 · Accepted solution]

The way I am understanding your post, it seems you made a mistake in 2021.  Maybe it was because you didn't really understand what you were doing and how the Obamacare subsidies work or because perhaps you put too much faith in what you HEARD - as in [quote]:  "Late last year, I heard that the IRS . . . . "   "I heard" has been the famous last words for many in many areas of our life.

So what actually happened is, as part of the American Rescue Act, the subsidy income level (known as the "subsidy cliff") was increased for 2021 and 2022.  What that means is that people who had a somewhat higher income level were given a subsidy where previously they didn't get any subsidy.  Unless Congress acts to extend this pass 2022 - the subsidy income level will revert back to pre-2021 levels or 400% of the Federal Poverty level.

This explains it in detail:

Healthinsurance.org - 12/07/2021 - Obamacare’s ‘subsidy cliff’ eliminated for 2021 and 2022

So to answer your question - (can't speak on the Turbo Tax thing) - it all depends on how much you withdrew from your IRA + any other income as to what subsidy you may be entitled.   An IRA distribution is counted as income because it was deferred income while within the IRA.  

I don't think you really understand the ACA subsidies - if you increase your income, you reduce the amount of subsidy; over a certain income level, they disappear altogether.  ACA subsidies are for the lower income folks - the lower the income, the higher the subsidy.    When the income level reach SO low - no ACA subsidy is given because those folks would qualify for Medicaid.

Sorry, I don't see an appeal here at all - you can't put back the IRA distribution, it counted - you will have to repay the subsidies you received in 2021 - and you also need to make sure any subsidy for 2022 is correct based on your forecasted income for 2022.

[OTG2017]

I think you accurately understood my predicament, and I agree that I made a mistake in 2021.  I think the biggest mistake I made was that I counted on the accuracy of the TurboTax software that led me to believe that I would still get a subsidy even with an IRA withdrawal.  I used the early release of the software to play a what-if game, trying to figure out the subsidy vs. IRA withdrawal amount.  The only good thing is that I never filed my return before the TurboTax error was corrected.  Thousands of people are unhappy with TurboTax because they now need to amend their returns due to this error.