Free-quent Flyer
Blogger
Just a quick reminder since I had forgotten this until I started filling out my taxes this morning:
The retirement savings credit is capped at the amount of your federal income tax liability, found on form 1040 by adding lines 44, 45, and 46. Line 44 is your income tax table assessment, line 45 is the alternative minimum tax, and line 46 is your "excess advance premium tax credit repayment."
As I've discussed before, it's mathematically impossible for a single filer to take advantage of the full retirement savings contribution credit, since at $18,499 in adjusted gross income, the 50% credit is capped at the $813 in line 44 income tax table assessment. But it's possible to get the full $1,000 retirement savings contribution credit by taking an excess $187 (roughly $16 per month) in advance premium support.
Basically, if you underestimate your income by enough to generate a monthly health insurance premium $16 lower than you'd otherwise be eligible for, you'll be forced to repay $192 of that credit when you file your taxes — but $187 of that credit will be covered by an additional retirement savings contribution credit you otherwise would have been ineligible for.
I discovered this because I switched from a subsidized exchange plan to Medicaid in the middle of this year, but it seems that it would be trivially easy to take advantage of on an ongoing basis for folks who are enrolled in exchange plans year-round.
The exact numbers will vary slightly if you are married, have dependents, etc., but the basic principle is that you can get the full retirement savings contribution credit if you're able to incur an excess advance premium tax credit during the year. If you're self-employed and able to easily move your AGI up and down through retirement contributions, this is an easy way to maximize the value of the retirement savings contribution credit which, in an act of bizarre injustice, Congress chose not to make fully refundable for low-income workers.
The retirement savings credit is capped at the amount of your federal income tax liability, found on form 1040 by adding lines 44, 45, and 46. Line 44 is your income tax table assessment, line 45 is the alternative minimum tax, and line 46 is your "excess advance premium tax credit repayment."
As I've discussed before, it's mathematically impossible for a single filer to take advantage of the full retirement savings contribution credit, since at $18,499 in adjusted gross income, the 50% credit is capped at the $813 in line 44 income tax table assessment. But it's possible to get the full $1,000 retirement savings contribution credit by taking an excess $187 (roughly $16 per month) in advance premium support.
Basically, if you underestimate your income by enough to generate a monthly health insurance premium $16 lower than you'd otherwise be eligible for, you'll be forced to repay $192 of that credit when you file your taxes — but $187 of that credit will be covered by an additional retirement savings contribution credit you otherwise would have been ineligible for.
I discovered this because I switched from a subsidized exchange plan to Medicaid in the middle of this year, but it seems that it would be trivially easy to take advantage of on an ongoing basis for folks who are enrolled in exchange plans year-round.
The exact numbers will vary slightly if you are married, have dependents, etc., but the basic principle is that you can get the full retirement savings contribution credit if you're able to incur an excess advance premium tax credit during the year. If you're self-employed and able to easily move your AGI up and down through retirement contributions, this is an easy way to maximize the value of the retirement savings contribution credit which, in an act of bizarre injustice, Congress chose not to make fully refundable for low-income workers.