INSTRUCTIONS: AFFORDABILITY EXEMPTIONS
2-2-2015 (16:22 EST), based on Version 1.02 dated 2/1/2015. Expect additional changes.
(Of course, fill out the ACA Wkt before this stage.)
Enter any ECN (Exemption Certificate No.) information into Part I. If these are full-year exemptions, click “NO” in
Part II.
If you don’t have any ECNs, try a getting an “affordability” exemption for the whole family for the whole year
using Part II: Household (Line 7a) or Gross income (Line 7b) over the filing threshold. On the right side of the 8965,
Part II, TW auto-fills the Filing Threshold for the return, as well as the Household income (from the ACA Wkt) and
Gross income (only the TP or TP/SP: see note on pub 4012 tab ACA-6).
By way of example, the screenshot below shows Household income is $12,060, which is above the threshold and
not usable to claim a Line 7a exemption. Click “NO” on Line 7a. However, the Gross Income of $11,600 is under
the threshold and therefore okay. Click “YES” on Line 7b.
Once you claim a 7a or 7b exemption in Part II, nothing else needs to be done for ACA. The whole
family gets the exemption for the whole year. No penalty appears on Line 61 of the 1040.
If the person could not claim 7a or 7b, there may be other possible exemptions in Part III (e.g., easy Codes like
B and G for some groups of months, or C for undocumented persons). If none of those work, proceed to the
Code A affordability exemptions for any family member that will be incurring a penalty.
Luckily, there’s a calculator for this, because these are a nightmare by hand. Version 1 is at this link:
http://aarp.bogarthome.net/ACA%20Affordability%20Calculator.htm. To print out a copy of the completed
calculations for the TP’s envelope for 2014, do Control-P (Command-P on a Mac) or use your browser’s print
function.
Starting at the top, enter the TP’s name. Selecting the Filing Status brings up the correct Filing Threshold over
on the right .
Note the regional button at the top right, as well as the useful “Clear” button. Entering the number of
dependents affects the FPL amounts on the right.
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Go to next box. We’re using TP Sheryl filing HofH, 2 kids, dependent Grandma.
You already know that her Household and Gross income are both above the $13,050 threshold, but enter the
Household income anyway (from 8965, Part II, second line down; the amount is needed later on) and do the
“Click to test” button. In the Household box, it produces in this case: “Go to next test, etc.”
Here’s what may show up in this Household box using a different scenario (low income, single, 1 dep):
The 138% is a cut-off point used for placing people with low incomes into a government program. We in
NY, CT and NJ are in states that expanded Medicare, so people with such incomes will be provided for
in programs like Medicaid and CHIP (not Mkt, but MEC). The green message is saying that a Code G
exemption can be used in Part III for those states that did not expand Medicaid under certain conditions:
The next box, “Gross Income,” should match what you already know (see earlier), but gives explicit instructions:
Again, using 7a or 7b exemptions means the whole family is exempt for the whole year and nothing more needs to
be done with ACA.
AFFORDABILITY WORKSHEET: for Code A and G affordability (8965, Part III)
Go to the top part of the box in the Worksheet that follows and add the monthly premium you have paid through a
salary reduction and previously excluded from income. You can get this from something like a paystub. (Do not use
Code DD amounts, because that should include both employer and employee contributions, and even then, it’s not
always reliable.) The software auto-fills that amount when the small box in lines 1 and 2 (down further) are checked.
For the purpose of this scenario, don’t check those small boxes: no add-back.
Using the Sheryl scenario above (HofH, 2 kids, Grandma), on the right side of that box is the 8% affordability
threshold monthly amount for the household income ($37,233) entered previously.
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Now for the worksheet part. Notice that the boxes in the Spouse and Dependents 4 and 5 columns are not
highlighted, since these people do not exist in this scenario.
The first instruction, to check the box for any person “covered by another exemption or already has insurance
for the months being tested,” includes family members fully covered by a government plan (e.g., Grandma on
Medicare) or employer plan. See down a little further for where it says: “Exempt by another code or covered:”
Dependent 3 (Grandma on Medicare) gets checked.
The IRS instructions say to choose from the 3 choices in the left column in order, i.e., only go to (2.) if (1.)
doesn’t apply, then (3.) if (2.) doesn’t apply. The instructions in the 2nd bullet are thorough and selfexplanatory.
We’ll try a couple of scenarios:
Scenario 1. An employer offered a self-only plan, and it’s not affordable.
Putting $240 into Sheryl’s (or anyone else’s) box where a self-only plan has been offered gives the answer “No”
to the right of the green “Click to test” box – Code A exemption cannot be claimed, because a premium costing
$240/month is less than the 8% Household income cut-off point.
The
indicates that you have the option to test Marketplace affordability (3.) further down the
page for those dependents (the kids in this case).
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Putting $280 into the Sheryl’s box gives a different result : Code A now becomes an acceptable exemption for
Sheryl (it’s 9% of Household): check off “Exm” for her on the ACA Wkt and put Code A against her name on one
of the lines in 8965 Part III; click “Full year” in part d.
To further clarify this, only put an entry in line (1.) if the person’s employer offers a self-only plan for that specific
individual. If you were to put one amount into Sheryl’s box and another figure into a someone else’s box (let’s say
one of the dependents had a self-only employer plan – hard to imagine, but maybe the person’s working only for
the health insurance and very low salary), the software fills the columns differently:
In the above situation, Sheryl can’t save herself from a penalty, but at least a dependent qualifies for a Part III
Code A exemption.
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Scenario 2. Employer offered a family plan, but that’s not affordable either.
Putting $400 into Sheryl’s opt. 2 box shows that the employer’s family plan at $400/month costs too much for this
family, since the annualized cost of $4800 is 12.9% of Household incom. (Grandma is still “X” because she’s on
Medicare.) Code A in 8965, Part III is good for all of them: apply it there to each of them on individual lines.
Sheryl gets no penalty on the 1040, Line 61:
You could have a situation where the employer offered a self-only as well as a family plan:
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MARKETPLACE COVERAGE AFFORDABILITY WORKSHEET
When no self-only or family plan was offered by the employer, you might have to go to the last calculator for a
final Code A exemption. You have entered no amounts in the option (1.) or (2.) boxes:
The pink boxes are saying for you to go look into this last option at the bottom of the calculator if you want to
try for another exemption:
Scenario 3. : Sheryl is now married to Willie and neither have employer-plan options. They have to
examine a Marketplace affordability exemption, which is choice 3.
In line 1., you need to enter the cost of the cheapest Bronze plan in their area. Clicking the top link
(valuepenguin) takes you to a comparison website inside the worksheet (Go JB !!!):
Affordability exemptions 2-2-2015 (based on version 1.02, 2/1/2015)
Select New York (or whatever), then 2014, their county, and the no. of people in the tax family. (That number
includes even those who weren’t included in the plan.) In this scenario, it would be 5. Next, enter the ages of
only those who need the plan: Sheryl (51), Willie (55) and the kids (14 and 15), whether they smoke, and
Household income ($90,000). Note: don’t make the mistake of putting a Child’s age into TP or Spouse slot.
Click “Bronze” and CALCULATE, and do not close that window or you’ll have to enter the info again later.
(Note: tobacco use allows insurance companies to charge 50% more for a plan.)
A list of premiums comes up, the lowest cost one being $1,275. Enter that amount into Line 1.
Scroll down below the planfinder window you’ve kept open. There are places to add any non-taxable SS (or
RR tier 1) amounts, but Grandma doesn’t have a filing obligation, so her MAGI (including non-taxable SS) is
not included in this scenario. Go back to the open the planfinder window (above Line 2) and now find the
second lowest-cost Silver plan, which is $1,451. Enter it on 10.
Click the green button up above in the Affordability Wkt.
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It comes up with Mkt plan for the family that was $537/month, which is 7.2% Household income and thus
“affordable.” The word “No” appears in the column for each family member: no one can use a Code A exemption.
If they hadn’t purchased family insurance in 2014, they cannot get a Marketplace Code A exemption (You could try
for other exemptions...... )
If Willie didn’t need the Mkt plan because he had employer coverage, you can start from scratch with that
knowledge, or go back and change the details: (a) recalculate the configuration in the planfinder, (b) enter the lower
policy costs in Lines 1 and 10, (c) put the amount of his employer coverage under his name, and (d) click to test.
The software once again lays out the costs for everyone, but still no Code A exemption is possible because they all
could have coverage that cost 8% Household.
NOTE: Try different Planfinders if you’d like. There are discrepancies. Or call the Marketplace. (Better still, have the TP call
the Marketplace!) You’ll be entering Bronze and Silver amounts into Lines 1. and 10 manually anyway, and there are many ways
to get those numbers. I suspect all this will stabilize at some point. 20 years ago nobody ever heard of the internet.
Scenario 4 : Circumstances change during the course of the year
Let’s say Sheryl got a new job and started employer coverage Aug. 1 at a cost to her of $190. First click the
month boxes next to Jan through July: those are the months she needed to keep the Mkt plan. Then put the
employer plan cost of $190 in her box. Click to test. The monthly amounts change:
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Remember: you’re only testing whether you can use a Code A exemption in Part III. You are not looking for a plan.
Also note that the penultimate line in the last screenshot: “Equivalent Annual Cost” is the annalized cost of the
months for which the current calculation is being done, not the total of the column.
If you can’t claim any exemption in Part I, II, or III of the 8965 from the return, make sure “Exm” is not checked off
on anyone’s line in the ACA Wkt. Form 8965 can be deleted from the return, Tax Wise calculates the penalty, and
brings it over to the 1040 at Line 61.
(The 242 in the above screenshot has nothing to do with any of the examples above.)
Worth your attention
If you enter a Household income that’s too low for the family’s circumstances, the NYS planfinder might give you a
message to the affect that there are cost sharing reductions for this plan. From what I’ve been told by the NYS
Mkt, when a person with low income looks for a Mkt plan asks for financial assistance, they can be placed into
Medicaid in as little as an hour, outside of the Mkt altogether.
But there are other “Cost-Sharing Reductions” opportunities for people whose income is not quite so low. These
make Mkt plans more affordable by reducing deductibles, copays, and the like. From an instructor at CBPP:
“People are generally eligible if their income is below 250% FPL and they choose a silver plan. CPRs don’t impact
the tax return because they don’t need to be reconciled and even if it is discovered that the person had income
above 250% FPL, they do not need to be paid back.”
Here’s the way ValuePenguin tells you that there are CPRs for the income and family situation you’ve input into the
planfinder:
Can’t tell you how grateful I am to Jeff Bogart for this calculator. I tried the calculations manually, and they were
horrible.
For his other ones visit: http://aarp.bogarthome.net/.
Prepared by Julie Woodward (Instructor, NY1 Westchester)
Probably TO BE CONTINUED when further clarification is necessary or JB tweaks the software even further.