Impact of Lump Sum on Obamacare Premium Credit Eligibility
Since premium credit eligibility is based on our anticipated income for the upcoming year, am I required to include a taxable lump-sum payment in our anticipated income for the year, even though it is attributable to earlier years (and will be shown that way on our 2019 federal tax return)?
The Full Story
Hello. My situation is complicated (sorry!). It is this: My spouse and I were on Medicaid until she went on Social Security Disability (SSDI) and Medicare in January of this year (2019). I am not disabled and not a senior, but my own Medicaid was also terminated because our household income (with my spouse’s new SSDI income) is now above the Medicaid income limit.
My spouse, as part of her SSDI, received a lump sum in January of 2019 of approximately $100,000 in back payments of SSDI from October 2015 to December 2018 (and she now receives her regular monthly SSDI payments in the amount of roughly $2400/month).
I know that when we go to file our 2019 income taxes in April of 2020, we will need to show that $100,000 lump sum payment in our income; but I also know that, using IRS form 915, we will be able to allocate the different portions of that $100,000 lump sum payment to the different tax years that it applies to ($9,000 for 2015, $29,000 for 2016, $30,000 for 2017, and $32,000 for 2018), so that the entire $100,000 lump sum is not taxed as 2019 income (which would put us into a much higher tax bracket, etc.).
My question is: Since my premium credit eligibility is based on our anticipated income for 2019, am I required to include the $100,000 lump sum in our anticipated income for 2019, even though it is attributable to earlier years (and will be shown that way on our 2019 federal tax return)?
It matters a lot, since that additional $100,000 in income would completely remove me from any premium credit eligibility at all, meaning I would have to repay 100% of the premium credits that I received during the entire 2019 calendar year.
Many thanks!
– Drew
Answer
The year(s) you claim your taxable lump-sum payment in is the year(s) it will impact marketplace cost assistance. If you know you will claim only part of the lump sum as taxable this year, then that is the only part of the payment you need to account for when figuring out cost assistance.
TIP: Please note, not all lump-sum income is taxable and not all lump-sum income impacts MAGI. Lump-sum SSDI is included, but SSI is not included for example. So that means for the specific question above, the answer above stands... but the point would be moot if the lump-sum was not taxable.