Does a lump sum settlement count for the entire year or only for the month in which it was received as it relates to the Obamacare subsidy? I have seen conflicting information on the internet. The settlement relates to income received from a divorced spouse. The liability accumulated over several years, but settled this month with the payment. Rephrased, the payment is large enough that if counted for the whole year, the entire year subsidy would be zero, but if counted only in the month received, the result would be losing the subsidy for only one month.


Answer

Lump-sum income is counted for the month for Medicaid and Medicare, but for ACA subsidies we believe it counts as annual. Think the confusion comes from the fact that it works different for Medicaid and Medicare. Check out the Berkeley page on MAGI, notice that lump sum is excluded from Medicaid eligibility only.

Still if you are talking repayment limits you may want to err on the side of it counting only for the month and seek some professional tax advice. We are going to look for laws and regulations to back up our claims with citations (sure it's all in some federal register somewhere). If you get advice in the meantime please come back here and leave a comment for our readers.

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Toni Gatesman Davis on


Answer Rating:

When I took my pension lump sum marketplace said it would only affect that month. I knew it would be difficult for IRS to know or track this. Every time I asked they all gave me same answers.

ObamaCareFacts.com on


Answer Rating:

Very interesting. If someone can confirm that they were able to have a lump-sum payment only affect the month that would be very valuable information to post here. We are under the impression that it’s true for Medicaid cost assistance, but not for premium tax credits.

If anyone can cite a specific source that would be helpful. Until then, we are going to suggest double checking with the Marketplace. Perhaps they have some updated information we don’t.

Vicky on


Answer Rating:

my husband was getting a lump sum pension of 23k when i called the marketplace they told me not to worry about it till i get it in nov. but i called the irs and they said doesnt matter if you get it jan 1st of the year or dec. 31st it does count for the year you get the lump sum in. therefore we would have had to oay the $800 a month for the insurance as it made it where we got no subsidy at all!! obamacare is not friendly to new retirees!! had to cancel the obamacare so my husband didnt lose his pension to it so without healthcare again!!!

ObamaCareFacts.com on

Thank you for the feedback. We do believe that you are right and that lump-sum payments simply count for the year in regard to tax credits or repayments. This is of course the taxable amount of lump sums. So If it is non-taxable social security, non-taxable life insurance payments, non-taxable retirement account withdrawals, etc then it’s not going to muck up MAGI.

For SS non-taxable lump-sum stuff people can look here: http://www.irs.gov/publications/p915/ar02.html

With pensions it can be smart to roll it over into a IRA or another tax deferred savings account. At that point you can take withdrawals at 59 1/2 (typically). After you are 65 you will have Medicare and can then take bigger chunks without as much tax worry (aside from increased Part B payments for instance).

Truth is, tax-wise there is never a good time or way to claim a lump-sum of money. It’s important to factor in the affect settlements, pensions, lump sum SS, and other big payments have on assistance programs!

John Prestifilippo on

How about if I take a lump sum pension payout in Dec of 2016 but roll the entire payment into an IRA making it non-taxable income, will this affect the subsidies I’ve received in 2016.

erin.georgen@gmail.com Erin on

According to the IRS you have 60 days to roll over retirement funds into traditional IRA and avoid tax penalties (Premium Tax Credits included). Essentially, if you put it into the IRA account within 60 days of receiving it (which is also going to be before you actually do your taxes) it doesn’t count against you as income. You shouldn’t include it in your estimates for income for purchasing insurance during open enrollment in 2017 coverage either. You must follow through and complete the roll over though, I can’t stress that enough. Any amount you end up keeping or spending IS income and will be subject to penalties and taxes. If for some reason you end up keeping a portion, be sure to update the marketplace so that cost assistance can be adjusted.

Also, there is a maximum amount of premium Tax Credits which might help you make the best decision.

kevin sewell on


Answer Rating:

Can I retain my medicaid if I receive a lump sum? I am willing to lose my ssi benefits but would like to keep my medical benefits because I am a Crohn’s Disease patient who receives an expensive infusion treatment every 8 weeks.

ObamaCareFacts.com on

Some types of lump sum payments must be claimed for the month you receive the payment. In some instances this can affect Medicaid coverage for that month. You can check with your state Medicaid department for details. Also check out this article on how Medicaid works under the ACA for more information on lump sum payments and Medicaid. http://www.healthreformbeyondthebasics.org/wp-content/uploads/2013/08/Income-Definitions-Webinar-Aug-28.pdf

marcia on

We took out Obama Care because we couldn’t afford health care and not knowing when we filed our taxes we would be subject to pay back a substantial penalty on the subsidies your privacyded up being a loan ??Otherwise we would have received a refund that we so desperately needed This is rediculous How can we pay it back ?when we couldn’t afford it in the Ist place I ‘m living from paycheck to paycheck and living on credit and in debt I’m getting sick over this !! So you’re taxed either way I think health care should be a personal issue not a govt issue It would have been better not taking it out and just paying the tax fine but my husband takes medication and can’t afford it to be without We dont have a large income and been living off my ira being unemployed for almost 3 years It doesn’t make sense!! How does the,IRS expect us to pay it back when we couldn’t afford health care to begin with I don’t know what we ate going to do ?Im sure alot of people are in the same situation as we,are We have to come to a,settlement Paying back the whole 12,000 is impossible !!!!!!!!!

Mick halbertson on

Unfortunately the working people are punished again while people on Medicare skate along Scott free many of them just not even wanting to work something is going to have to happen these people are going to have to start working and contributing to our country instead of becoming a lifetime drain or this country will implode.

ObamaCareFacts.com on

The reality is 75% of Medicaid users are from working families (and thus qualify for Medicaid with income and are not just “getting something for nothing”).

It doesn’t mean that is the only factor to consider, but it is worth learning about who the Medicaid population actually is before pinning all the world’s problems on them. 😉

DIANNE ARBOUR on

I have a chance to take my pension lump sum in October 2016. Will this affect my tax credits from Jan to September or just starting from October?

ObamaCareFacts.com on

If you take a taxable lump sum of money it will count toward MAGI and affect tax credits. So make sure to plan for that. This document explains a bit: http://www.healthreformbeyondthebasics.org/wp-content/uploads/2013/12/Modified-Adjusted-Gross-Income-FAQ.pdf

Sonika on

Hi, if someone lost their job and received Medicaid from Jan-Jul, then received a lump sum of $12K from their former employer in June (which made them not longer eligible for Medicaid (then purchased Obamacare Health Insurance beginning in Aug) – and will also receive another $12K final lump sum in July, does that mean 1) they will not be eligible for Medicaid the rest of the year? And 2) will they have to pay back Medicaid for Jan-Jul, even if the insurance was not used?

Susan on

Where do we get the tax advice on regulations to losing our subsidy with a SS backpay? The tax folks I’ve talked to say they are not experts in the subsidy regulations when you receive a lump sum (back pay) due to a SS error. I have to know if I should receive the lump sum back pay ($50,000) for 2016 and pay back my entire subsidy for every month I got it in 2016, or ask that the check be paid to me in 2017 and ruin my entire year subsidy for 2017 (where my premium is reported to be $1226 a month). The back pay isn’t a windfall settlement, it is owed to me because I was refused SS 4 years ago and it was learned that was done in error.

Felix Lisin on

It is not quit understandable.
Look at my example.
I retired and took lump sum of my pension. Federal tax was taken. This money I will use during next 10 years for living. But I got a letter from SSA saying I will pay more for Medicare Plan B significantly. Since me and my wife tax return jointly my wife will have 2017 monthly benefit of $849.90, and her monthly benefit amount after deductions will be $493.00. So, almost 42 % of monthly SS benefit will be taken for Medicare Part B.
This is Obamacare. It is wrong.

Erin on

That is actually the way Medicare functioned before the Affordable Care Act as well.

Cindy on

I am about to get an insurance settlement for a car wreck. I will recieve it before the end of the year. how will that affect the prior months i recieved obama subsidy?

Erin on

Your Premium Tax Credits are based on your MAGI. Typically auto insurance settlements are not taxable income for AGI or MAGI and not considered for Premium Tax Credits. This is true for settlements related to injury or for damages to a vehicle. However, if you receive settlements for lost income, then it would be subject to income tax.

Tom on

Here’s a similar question to ponder. My wife was recently approved for social security disability. She will receive a lump sum back payment for from April 2013 thru Aug 2017 (yes, it took 4 years to get through the bureaucracy) Here’s my question: We have both received PTC’s in 2014, 2015, 2016, and 2017. I know the lump sum will put us over the PTC limit of 400% of poverty level for 2017… but what about prior years? From what I’ve read, the lump sum SS payment will all be reported as part of our 2017 MAGI but will the portions paid for prior years adjust my MAGI for those years as well. In other words, could we potentially end up having to pay back our PTC for 2014, 2015 and 2016 or only 2017? I’m hopeful the answer is 2017 only. Any insight would be appreciated.

Larry Hountz on

Did you ever get a answer to this question, I have a similar issue got paid 4 yrs SS and now the IRS is stating I owe money for my Obama care credits

ObamaCareFacts.com on

I will make a note to research this more. Obviously it is important to have a definite answer on lump sum and the ACA. If anyone knows for sure, please post it below.

Susan Stanford on

I received subsidized Obamacare for 12 months in 2015. I had applied for Disability during that year and was awarded an unexpected lump sum in October 2015. When I filed my tax return I was told all the subsidy for 2015 for Obamacare would have to be paid back even though I didn’t get my lump sum until October lf 2015. My accountant tried to find out if there was a way for me to pay back only October, November and December but we were told that there had been no provisions set up for situations like this. I called my congressman and was basically told the same thing. I felt that I should have only had to pay the months of October, November and December since I didn’t realize this was going to happen but IRS is making me pay it back. Does anyone have any additional information regarding this subject that might be helpful?

Laura on

My income was not doing as well for 2016 as expected. I withdrew money out of my annuity at the end of the year. I was penalized 10% on my withdraw. Now my tax return says I have to pay beck 400% of my Obamacare subsidies back which is $2500.00!!! OMG!
I withdrew the money out in the last month of the year because I had No money. Am i liable for the whole year $2500 ?

Cynthia on

I actually made a negative income due to medical out of pocket and because I received a lump sum SSI payment after three years the IRS wants me to repay the Affordable Care tax credits. It is beyond ridiculous they even want me to include the $6000 that was paid directly to the attorney. I did not qualify for medicaid based on my monthly benefit of SSI after 62 yrs old then some I did qualify for some assistance in my premium and then almost 3 years after I initially applied and being denied an attorney got involved and SSI had made the mistake and agreed I should have been paid the higher amount all along and qualified for medicare. However I immediately cancelled the affordable care assistance after being notified and then got a policy that works with medicare high deductible because I am not yet 65 and the IRS wants me to pay back all of the assistance I received so now I have to go get a equity mortgage to pay that.

ObamaCareFacts.com on

Thank you for pointing this out. That is not fair. It is one of those problems that I wish government would address before they started in on their wish list.

Joann gray hughes on

I was found disabled by medicare ssdi and received back pay for the years 2012,13 and 2014. I was on obamacare for 7 months in 2014 and at tax time we were told we had to pay 13,070.00 which was for affordable care act. In other words the back pay awarded me for years 2012 and 2013 counted towards income for 2014 and I was taxed by affordable care although I didn’t have insurance in those 2 years. Does anyone know if I overpaid?

Charlene on

If I receive social security benefits in a lump sum in one year, but only use it over 4 years, is the Obamacare penalty assessed on the full lump sum or just the one year’s worth of benefits that I use?

ObamaCareFacts.com on

If lump-sum payments are taxable (and there is no exemption) it will only affect the cost assistance amounts you get (or the fee you owe) for the year in which you receive the lump sum.

With that said, you should let the marketplace know so they can help guide you (there are different types of lump-sum payments and they can affect different assistance programs differently).

The IRS says:

Increases or decreases in your household income, including lump sum payments like a lump sum payment of Social Security benefits or taxable distributions from an individual retirement account or other retirement arrangement

https://www.irs.gov/affordable-care-act/individuals-and-families/questions-and-answers-on-the-premium-tax-credit

It generally works like this (for life insurance for example):

As a rule of thumb non-taxable lump sum income like life insurance death benefits payments don’t count as taxable income and therefore have no affect on Medicaid or Marketplace subsidies. The same can be true for “cash value”. As a rule of thumb any money that is taxable is going to affect your Modified Adjusted Gross Income (MAGI) and that is going to affect your cost assistance eligibility and amounts you must repay in advanced tax credits. If you do get benefits that are taxable then you can end up owing back some or all tax credits.

https://obamacarefacts.com/questions/how-does-life-insurance-income-affect-obamacare/

Cathy Samms on

I am thinking about taking a lump sum of my pension. will that effect my obama caree payements

ObamaCareFacts.com on

Yes, generally speaking taking a lump sum taxable payment affects ACA assistance. It is like this for any account which you have to pay taxes on when you withdraw funds.

With that said, you may want to consult a tax professional for assistance and you would likely want to consult the marketplace.

It could be that it makes sense to take part one year and part the next year for tax purposes (assuming that is an option). So there are some things to think about.