The ACA and custodial vs. non-custodial parents

[grmy2h]

http://kaiserfamilyfoundation.files.wordpress.com/2013/01/8194.pdf

Non-Custodial Parents. With the new tax-based definition of family size, a child claimed as a dependent on a

non-custodial parent’s tax return will not be counted in determining the family size of the custodial parent’s

household. The ACA states that in such cases, a premium credit is not allowed with respect to the child. This

means that such a child will not be able to get coverage as part of the custodial parent’s coverage but would

be eligible to receive coverage through the non-custodial parent. Since only one parent can claim the child as

a dependent, this may result in different choices about which parent claims the child for tax purposes.

However, the statutory requirement that a child obtain coverage with the parent claiming that child is specific

to the premium credits. It is unclear whether this will apply to Medicaid as well, which should be addressed by

federal guidance.

[michaelmars]

what about divorce decrees where the parents alternate the deduction, will insurance have to change each year?

[Lion EA]

We don't know that yet. But we do know that who can claim a credit will change with the dependency change. Similar to education credits. A real bummer for divorces that already took place under former tax laws!

[Guest Taxed]

We see that here every year in MA in October when open enrollments begin. If the income for the household where the child lives is below the stated poverty level then the child gets MassHealth insurance (no premiums). So to get that divorced couples, never married couples rearrange their household and tax returns to make sure they qualify. We do have to send proof of income and tax return copy.

I have never seen an argument between the parents of that child on this issue. They may hate each other but on this they are unified!

[NECPA in NEBRASKA]

Taxed,

Does that mean that they don't alternate the exemption?

[Lion EA]

Paying no premiums because the child lives with you is not the same as thinking you will get the new credit because the child lives with you and discovering that your ex will get the credit instead because you signed an 8332 for the year (or for all years or for all alternating years). How many custodial parents will not know this until they go to file their tax returns the following year?! Another time we will have to explain the bad news to them.

[kcjenkins]

Another bit of joy that comes from rushing a bill through without taking the time to look at all the ramifications of it's consequences. It's going to be a mess to try to explain to clients for sure.

[Lion EA]

I think I'll add a line item on invoices for Explaining the Dumb Things Congress Does.

[Mr. Pencil]

How many custodial parents will not know this until they go to file their tax returns the following year? Another time we will have to explain the bad news to them.

No. The time should be during the regular annual tax update process, so they can plan properly. End of year letter, organizer cover, or office interview as appropriate. If your practice doesn't include such service, then it should be of no concern to you one way or another. But what is so hard about it? The issue fits exactly into the issues we already have with releasing an exemption. Some benefits transfer. Some don't.

[Lion EA]

If their divorce was already final, there is no planning I can do with my client that can get that credit back for them without them risking contempt of court when they don't deliver an 8332 as agreed. And, all their friends will be talking about that new credit they got....

[grmy2h]

If their divorce was already final, there is no planning I can do with my client that can get that credit back for them without them risking contempt of court when they don't deliver an 8332 as agreed. And, all their friends will be talking about that new credit they got....

But won't the recipient of that 8332 be responsible for the insurance or pay the penalty.

[Mr. Pencil]

If their divorce was already final, there is no planning I can do with my client that can get that credit back for them without them risking contempt of court when they don't deliver an 8332 as agreed.

Of course there is planning. Changes in the tax law are the most common REASONS for planning. Maybe they need to go back to court or make new arrangements. So tell them about it right away, not when they come to pick up the return.

[Guest Taxed]

Taxed,

Does that mean that they don't alternate the exemption?

They figure out that getting MassHealth (no premium or deductible, very small co pay, covers dental) is worth a lot more than the tax advantage of the exemption.

I have one divorced client (they were married when I took them), the husband makes $48K and the wife makes $12-$16K working as a waitress. 2 kids are claimed by the mother, even though they told me that their divorce decree awarded 1 child each and they were suppose to rotate after the older was over 16. There is 5 yrs difference between the kids.

[NECPA in NEBRASKA]

Thanks. Nebraska did not expand Medicaid, but I know a mother that should still be able to get her daughter covered if she can get the dad to let go of the exemption. I just can't see that it would be worth having to change insurance every year and he makes too much money to get a subsidy.

[Guest Taxed]

>>> I just can't see that it would be worth having to change insurance every year and he makes too much money to get a subsidy.

In MA you don't have to change insurance company if you are disqualified from MassHealth (parent's income went up). Basically all that happens is that you lose the subsidy so now you got to pay premiums based on your income and the deductible, co-pays go up. But the basic insurance policy and carrier stay the same, unless you want to change it.

The two popular carriers in our state are Boston Medical Center, and Network Health with the lowest premium structure. There are some fancier ones (Harvard Pilgrim, Fallon Health, Neighborhood Health) in the Eastern part of the state.

Obviously with the less expensive options your choice of doctors in that network are limited.

[Lion EA]

I tell my clients about everything all the time. If insurance is expensive to them, then lawyers and court will be more so. And, in my 66 years, I've seen only one change to custody that wasn't agreed to by the other party. I've lived and worked in only five states, but their courts have been reluctant to change divorce agreements when one party protests. So, if the custodial parent is responsible for the child's insurance but doesn't get the credit, I'm going to hear complaints now when we discuss it and again next year when we prepare their returns. My point was that we get to be the bearer of the bad news that Congress created. I wish the lawyers that worked out the original agreements would jump in now to help with "planning."

[Guest Taxed]

It only works when both the parents have a common goal to save on insurance premiums. If one parent is opposed to making any changes it will not work. I have clients (men) who complain loudly that the court forced them to carry health insurance for their ex wife, even though she could go to the Exchange and get her own.

[michaelmars]

I think I'll add a line item on invoices for Explaining the Dumb Things Congress Does.

that would be my entire invoice

[michaelmars]

Of course there is planning. Changes in the tax law are the most common REASONS for planning. Maybe they need to go back to court or make new arrangements. So tell them about it right away, not when they come to pick up the return.

or maybe estimates have to be adjusted or additional taxes budgeted for.

[Lion EA]

Michael: lol