Assistance for Health Insurance Costs
One of the largest budget items for older farm couples is health insurance costs. I remember teaching in Nebraska a couple of years ago that CPAs mentioned that some of their farm clients were paying over $40,000 in health insurance premiums.
Farmers with modified adjusted gross income (MAGI) under certain levels are allowed to get a premium subsidy by purchasing insurance on the exchange. However, if you exceed these levels by even a dollar, you have to pay all of the subsidy back when you file your income tax return.
The American Rescue Plan (ARP) provides some beneficial changes for farmers and other taxpayers. First, for 2020 tax returns, there is no requirement to pay back any of the excess premium subsidy. Even if the farmer owes over $10,000 for 2020, this is completely forgiven.
Here is an example, John and Shirley, age 62, purchase health insurance on the exchange costing $24,000. Based on their estimated MAGI, they qualified for a $16,000 subsidy. Their CPA prepared their 2020 income tax return and calculated their MAGI at $70,000 which was slightly over the 400% of poverty limit. This required them to pay back the $16,000 premium subsidy. However, due to ARP, they no longer have to pay this back.
Normally, a farmer would not receive any subsidy if their MAGI exceeds 400% of the poverty level. These levels are currently around $51,520 for a single person, $69,680 for couples and $106,000 for a family of four. Above those levels no premium assistance is allowed. The ARP now removes this "cliff" for 2021 and 2022.
For those years, the maximum amount of out pocket cost for health insurance premiums will be 8.5% of MAGI. Let's look at our previous example to see how this would affect John and Shirley for 2021 and 2022.
Let's assume that their MAGI remains constant at $75,000 for both years. Under pre ARP rules, they would owe $24,000 of health insurance premiums for both years at a total cost of $48,000. Under ARP, their premium is capped at $6,375 for both years. This equals a total cost of $12,750 or an overall savings of $35,250.
As you can see, the savings for a typical older farm couple can be dramatic. They would continue to see some premium subsidies all the way up to $282,350 of MAGI, whereas under pre-ARP, they would lose their subsidy around $70,000 of MAGI.
The Biden administration announced extending open enrollment until August 15, 2021. The sooner you sign-up the more credit you will qualify for.
