ACA Penalty for Exceeding 400% FPL - How to Calculate Subsidy Repayment?

This is a common concern when dealing with ACA subsidies! What you're referring to is the Premium Tax Credit (PTC) repayment. Prior to the American Rescue Plan Act, there was indeed a "subsidy cliff" at 400% FPL where you'd have to repay all subsidies if you went even $1 over. However, this changed for tax years 2021 and 2022, and has been extended through 2025. Currently, instead of a cliff, there's a sliding scale. At incomes above 400% FPL, the maximum you'll pay for benchmark coverage is 8.5% of your household income. So your husband won't necessarily lose all subsidies, but his repayment amount will depend on exactly how much he goes over. That said, reducing MAGI (Modified Adjusted Gross Income) is definitely smart. Both traditional IRA and HSA contributions directly reduce MAGI. For 2024, he can contribute up to $7,000 to an IRA if he's 55+ (includes $1,000 catch-up contribution), and if he has a qualifying high-deductible health plan, up to $4,150 to an HSA ($1,000 catch-up included).

I went through something similar with ACA subsidies and got hit with a huge tax bill. I found this amazing AI tool called taxr.ai that saved me so much stress when figuring out my ACA subsidy repayment. I uploaded my tax docs and marketplace forms to https://taxr.ai and it ran different scenarios showing exactly how much I'd owe at different income levels. It even suggested specific deductions like IRA and HSA contributions that would put me in a better bracket. The tool showed me how to reduce my MAGI enough to save over $4,000 in subsidy repayments.

Guys I wanted to update after trying taxr.ai that the previous poster mentioned. I was skeptical but it actually worked amazingly well for my situation! I uploaded my 1095-A and income docs and it immediately showed me that contributing $4,200 to my IRA would drop me just below a threshold that saved me $3,800 in subsidy repayment. The thing I liked most was seeing exactly where the "sweet spots" were for contributions - like how much exactly I needed to contribute to get the maximum benefit. Way more detailed than any other calculator I've found. Already adjusted my withholding for the rest of the year based on their recommendations!

I had this exact same issue when I realized my income was going to be way over the limit. Called the marketplace like 6 times and couldn't get through to anyone. Then I tried Claimyr (https://claimyr.com) and they got me connected to an actual marketplace rep in like 15 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The marketplace rep walked me through exactly what my options were based on my new income estimate and helped me adjust my subsidy for the remainder of the year so I wouldn't have such a huge bill at tax time. They also explained that I could still get partial subsidies even over 400% FPL with the current rules. Seriously saved me hours of being on hold.

Ok I need to eat my words about Claimyr. I tried it after posting that skeptical comment and it actually worked perfectly. Was connected to a marketplace rep in about 18 minutes when I'd been trying for DAYS to get through. The rep helped me figure out exactly how much my subsidy repayment would be with my new income and helped me adjust my current subsidies to minimize the impact. They even told me about a special enrollment period I qualified for because of my income change so I could switch plans if I wanted. Honestly shocked at how well this worked - would have spent HOURS on hold otherwise.

One thing to consider - HSA contributions might be more valuable than IRA in your situation since they're triple tax advantaged. They reduce MAGI (helping with subsidy issues), grow tax-free, AND can be withdrawn tax-free for medical expenses. For 2024, the limit is $4,150 for individuals 55+. But remember you need an eligible HDHP (High Deductible Health Plan) to contribute to an HSA. Not all ACA silver plans qualify as HDHPs.

Has anyone actually calculated the subsidy repayment cap amounts for 2024? I know they vary by income and filing status and wondering if there's an updated chart somewhere.

Just wanted to share my experience with a similar situation last year. My income ended up being about $65k (also filing separately) and I was worried about the subsidy repayment. What really helped was working with a tax professional who specialized in ACA issues - they walked me through the actual calculations using Form 8962. The key thing I learned is that the repayment isn't always as bad as you think, especially with the current rules. In my case, even though I went over 400% FPL, the 8.5% premium cap meant I only had to pay back about $2,800 of the $9,000 in subsidies I received. For your husband's situation with $63k income, maximizing both IRA and HSA contributions (if eligible) could definitely help. The IRA contribution alone could reduce his MAGI by up to $7,000, which might be enough to keep him under or closer to the 400% FPL threshold. I'd strongly recommend running the numbers both ways - with and without the contributions - to see the actual impact on his tax liability.

One important thing to keep in mind is that your husband can make estimated tax payments throughout the year to avoid a big surprise at filing time. If he's confident his income will exceed the thresholds, he can calculate the approximate repayment amount and make quarterly payments to the IRS. Also, regarding the IRA contribution strategy - make sure he has earned income to qualify for IRA contributions. Investment income (dividends, capital gains) doesn't count as earned income for IRA purposes, but his contract work income should qualify. The contribution deadline is typically April 15th of the following year, so he has time to see how his final income shakes out before deciding on the contribution amount. Another option worth exploring is income timing - if he has any control over when he receives payments from his contract work or when he realizes capital gains, he might be able to shift some income to 2025 to stay closer to the 400% FPL threshold for 2024.

I've been following this thread and wanted to add some clarity on the estimated tax payment question that came up. Yes, estimated payments should include both your regular income tax liability AND the expected Premium Tax Credit repayment amount. The safe harbor rules (paying 100% of last year's tax or 90% of current year's tax) still apply, but since PTC repayments are considered additional tax liability, they should be factored into your calculations. For the original poster's husband, I'd recommend using IRS Form 1040ES to calculate quarterly payments. The key is to treat the PTC repayment as part of your total tax liability for the year, not as a separate penalty. This way you avoid underpayment penalties and spread the cost over the remaining quarters instead of getting hit with a large bill at filing time. Also, regarding the income timing strategy mentioned earlier - be careful with contract work payments. If the work was performed in 2024, the income generally needs to be reported in 2024 regardless of when payment is received (assuming he's using cash basis accounting, which most individuals do). However, he might have more flexibility with the timing of capital gains realization if he has unrealized gains in his investment portfolio.