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PPACA tax credit: What if you get married?

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Anonymous staff members at the Internal Revenue Service (IRS) have come out with what may prove to be three of the most widely read, most influential and most puzzling short stories of the year.

The stories are the vignettes given as examples in Publication 974 — a draft version of instructions that will help newlyweds see if they qualify for a break on Patient Protection and Affordable Care Act (PPACA) advance premium tax credit (APTC) repayment obligations.

See also: What H&R Block says about PPACA

Since Jan. 1, 2014, PPACA has provided a tax credit that many consumers can use to help pay for qualified health plan (QHP) coverage purchased through a PPACA exchange. Consumers could choose whether to get the tax credit after the end of the 2014 calendar year, when they paid their 2014 income taxes, or to get the IRS to pay the money to the QHP issuers while the year was still under way, to help reduce the amount of cash needed to pay the premiums.

Many consumers who got too much APTC money from the IRS as the year was under way will have to pay some or all of the money back, using a complicated set of rules and formulas.

In Form 974, for example, IRS officials say taxpayers who married in 2014 might be able to reduce APTC repayment obligations if they use the method described in the Alternative Calculation for Year of Marriage, but that newlyweds need not actually use the form.

Readers may enjoy starting some series of stories in the middle, but readers have to read PPACA-related tax forms and instructions in the right order for full enjoyment. Staff members begin the current draft of Form 974 by stating that taxpayers qualify to use the alternative method only if those taxpayers give the right answers to questions included in two other documents: IRS Form 8962 — the IRS Premium Tax Credit form — and the Form 8962 instructions.

Staff members do not describe the kinds of people who might be able to give the right answers to Form 8962 and Form 8962 instructions to use the alternative calculation method.

See also: For tax preparers, PPACA may bring a paperwork feast

In the vignettes, the staff members do describe three possible alternative calculation newlywed families, to illustrate how newlyweds should calculate family size to get the APTC repayment break.

For more about the vignettes, read on.

Ron, Suzy and Max

1. Ron, Suzy and Max

Ron, Suzy and their son Max have lived together since July 2013. Ron and Suzy got married in August 2014.

Each of them had coverage under a QHP before September.

Max is Ron’s dependent, and he’s also Suzy’s dependent.

The parents can make Max either parent’s dependent for alternative family size purposes.

See also: Lynn Quincy: How you explain PPACA matters

Rob, Liam and Tara

2. Rob, Liam and Tara

Rob and his son, Liam, lived together from January 2014 through May 2014. Rob married Tara June 20, 2014.

Tara moved in with Rob and Liam June 11. They stay married and lived together for the rest of the year.

Each of them had QHP coverage in the months before July 2014.

Liam qualifies for Rob’s dependent, because he’s Rob’s son. He also can qualify as Tara’s dependent, for alternative family size purposes, because he’s a stepchild who lived with her for more than half of 2014.

Note that the IRS staff members have made a typo that suggests that there could be some extra drama in Rob, Liam and Tara’s lives: In the current draft version of the vignette, they mistakenly say that Liam qualifies as the dependent of Ron — the father in the household in the first vignette. 

If readers were to treat that typo as a genuine part of the first vignette, that could raise questions about why Ron’s son is living with Rob and Tara…

See also: Estate planning for the modern family

Nancy, Leia and Vince

3. Nancy, Leia and Vince

Nancy and her daughter, Leia, lived together from January 2014 through July 2014. Nancy then married Vince in August 2014, and Vince moved in with his bride and stepchild.

Each of them had QHP coverage for the months before September.

Leia qualifies as Nancy’s alternative family size dependent, but she does not qualify as Vince’s alternative family size dependent, because she did not live with Vince long enough to qualify as his dependent.

See also: What if the IRS pays an exchange plan late?

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