by Robert Randall
Note: This is a follow-up to Robert’s previous post from June 2014.
Having now had a chance to further experience the Affordable Care Act (ACA, often called Obamacare) and see how it really works tax-wise, I wish to both correct some errors in my previous post and further expand on its potential usefulness as a way to redirect federal income taxes from war to something less awful.
A reminder: this information is only relevant to you if you are eligible to receive assistance from the feds in obtaining health insurance or if, as a war tax resistance contact or counselor, you would like to be knowledgeable about and assist others in achieving clarity concerning this new way of redirecting taxes.
First, the much-needed correction: the premium tax credit available under the ACA cannot be used to eliminate or reduce your income tax liability except to the extent that you pay up front, in excess of the tax credit, an amount for your insurance which will offset the taxes you would otherwise owe (see strategy 1 below). In other words, contrary to what I previously had thought (due to some very misleading language on both the healthcare.gov website and in the eligibility letter which it generates), you will not receive any unused premium tax credit. The premium tax credit will never exceed the premium amount of the insurance you purchase through healthcare.gov. If you don’t use it, you lose it.
That said, the ACA still offers resisters new opportunities to not pay for war. We should add it to our list of methodologies for war tax resistance (though, being legal, you may not want to call it resistance so much as refusal or redirection or conversion).
Second caveat: I was right to say that we lucked up last year. Perhaps Humana just mis-judged or perhaps they deliberately underpriced their product to lure customers away from Blue Cross Blue Shield, but, regardless, this year the market “corrected” itself and the platinum plan we enjoyed last year for nothing would have cost us $539/mo this year!! That’s more in line with what most people can expect, since the whole system is designed to have you paying a “minimum contribution amount” for a silver plan. This year more insurance companies are offering policies in our coverage area and the pricing is closer together among all of them, so no big bonus for us.
BTW, my previous post talked about coverage options in your state. In fact, it’s more localized than that. The options and pricing actually vary by coverage area, which can be as small as your county or zip code. I live in an area where premium prices rose steeply between 2014 and 2015; only a short distance away they fell just as steeply. You just have to re-check every year to see what’s currently available and how using ACA will or will not assist you in your war tax redirection. I think it almost always will help.
The best publication for understanding the ACA as it affects the federal income tax is Publication 5187 from the IRS. Go online to irs.gov and get it. I have found that it is accurate, whereas the healthcare.gov sight is both misleading and obfuscates the math. In addition, you’ll want to get Form 8962 and its instructions, Form 1040 and its instructions, and whatever other forms you’ll need to compute your taxes for next year.
Can You Do It?
So… let’s begin by talking about eligibility. One can get a premium tax credit from the U.S. treasury only if you purchase health insurance through the marketplace for your state. WARNING: the open enrollment period for 2015 ends on February 15th! So you don’t have much time left to figure out what you want to do. (But if your life circumstances change you might be eligible for a special enrollment period later. You’ll have to go online at healthcare.gov and apply; if your answers to their questions qualify you, you’ll get a notice stating so on your eligibility letter. Your insurance can’t start until the month after you enroll, though, so the sooner you do it the better. Remember too that there is a tax penalty for not having a qualifying medical plan, unless you meet certain very narrow exemptions. Relevant to resisters, one of the exemptions is having income below the threshold for having to file a tax return. Another is if the cost of the insurance would exceed 8% of your income.)
You cannot purchase insurance from the Marketplace if you already have or can get qualifying coverage through your employer or some other government health plan (Medicare, Medicaid, TriCare, etc.) or if you have purchased such coverage yourself outside of the Marketplace. So to take advantage of the ACA to redirect your taxes you may have to ditch your current coverage or even your employment. As with all WTR, there can be life-changing decisions to make. But note that even though some people in your coverage family may be ineligible for Marketplace coverage because of having other coverage, others in your coverage family may still be eligible. So long as anyone in your family can get Marketplace insurance, you may be able to get a premium tax credit, provided you meet the criteria for doing so.
One of the criteria you must meet is that, if you are married, you file jointly. This could be a particular barrier to resisters such as myself who live in a mixed marriage (i.e., the spouse is not a resister) and therefor have always filed separately. But don’t assume it’s a deal-breaker: if the premium tax credit can be used to eliminate your liability to the U.S. General Fund, from which war expenditures are made, (and I’m going to suggest some strategies for doing that), then there is no longer an impediment to filing jointly.
Non-filers have a different dilemma. If you are a non-filer and are “off the radar”, you probably want to stay that way and will therefor steer clear of healthcare.gov. If you are a non-filer but are already on IRS’ radar, then it may not matter whether or not you go for the ACA insurance. However, you can get the premium tax credit only if you file a tax return. So if you are a non-filer and you really need to get health insurance (One great thing about ACA is that pre-existing conditions no longer prevent you from getting insurance – something we certainly took advantage of last year.) or want to get it, then you’ll need to look at the math and figure out what your conscience will allow. Once you’re “on their radar” or interacting in a way which makes it more likely that the IRS will insist on collecting back taxes, will you cooperate? If so, how much will they insist that you “owe”? How does this compare with how much they’ll have to pay for your insurance coverage? Can you live with the trade-off? Here’s my thinking on my own similar situation:
Although I’ve never been a non-filer, I have been a non-payer, and my tax debt has piled up over the years. Last year, the IRS started garnishing my wages in March. The garnishment will continue into this March. By the time it’s over, the IRS will have seized nearly $23,000 from me. (Yes, it’s been a tough year, but getting through it is a different story.) However, I can also say that in 2014 the federal treasury spent nearly $17,000 on our health insurance and in 2015 it will spend another $14,000. Adding in the amount of tax we’re paying for 2013 & 2014 (due to filing jointly with a non-resister spouse), we’re still redirecting more money into insurance (meeting at least our human need) than we’re paying to the U.S. general fund. In this way, thanks to the ACA, I can still say that we haven’t contributed anything to the war machine. If you are a non-filer, you might want to look at how the numbers would work in your own case and how you feel about the fungibility of money to help you determine whether or not to change your method of war tax resistance.
Even if you purchase insurance through a Marketplace, you can receive a premium tax credit (PTC) only if your modified adjusted gross income (MAGI) is between 100% and 400% of the federal poverty level (FPL) for your family size and location (FPL is higher in Alaska and Hawaii). This is a moving target, as the FPL changes every year. Also, the FPL used for any year is based on the FPL which has been published as of the first date of the open enrollment period, so, for example, for 2014, when open enrollment began on Oct 1, 2013, the FPL figure used to calculate both your eligibility and your minimum contribution amount (see below) was the 2013 FPL, not 2014. I have not figured out yet whether the FPL used in 2015 calculations will be the 2014 or 2015 figure, as I don’t know which figure was available when open enrollment began on Nov 15, 2014. Obviously, for resisters interested in using a PTC to reduce or eliminate their taxes for war, getting your income within this range is essential. Some resisters may actually need to increase their income in order to decrease their war “obligation”. Others will need to lower their income. MAGI is your adjusted gross income showing on your tax return plus some non-taxable income, such as non-taxable interest and social security benefits. This means you can use any or all of the methods on lines 23-35 of the Form 1040 to lower your income to below 400% of the FPL and thus become eligible for a PTC. (This also lowers your regular tax amount: it’s the DON method promoted by Dave Gross.)
A Special Note to Low-Income Resisters in Certain States
When the ACA was written and passed, the idea was that Medicaid would be expanded to cover everyone whose income was below 100% of the FPL. That’s why the PTC is available only for those at or above 100%. Unfortunately, the Supreme Court threw out the part of the law which required states to do that expansion. Even more unfortunately, many states, such as my own, which are dominated by Republicans, refused to expand Medicaid to cover those people. This has left a cruel gap in available coverage: hundreds of thousands of poor people in Georgia alone who make too much money to get Medicaid but not enough to get the PTC — millions of such people across the country. For them, health insurance is still not affordable. I’m sure that many war tax resisters who have chosen to live on low incomes in order to not pay for war fall into this gap, if you live in such a state. Hopefully this new method of redirecting taxes will enable you, if you are one of those people, to find a way to raise your income, get health insurance, and still not owe taxes for war – if that’s what you’d like to do. Or you can move to a more enlightened state.
So How Do I Go About It?
You’ll need to know your income for the year. See above for how to determine your MAGI. That’s the income you’ll want to use. It means planning ahead.
What if your income is uncertain? You can start with an estimate and change the income figure as the year goes along. This will alter the monthly premium tax credit amount. When you file your income tax forms next year, it all gets reconciled: you may owe more or the feds might owe you, depending on how much credit you’ve used during the year.
Should you estimate high or low? Normally, estimate high. That makes it less likely you’ll use more PTC than you will ultimately have. BUT if you estimate too high, you could end up choosing less insurance than you might otherwise get: you’ll both have more out-of-pocket exposure on your medical expenses and be leaving potentially redirected tax money in the U.S. treasury. Interestingly, there is a cap on how much you’ll owe back to the IRS if you estimate your income low and do use more PTC than you should. This cap varies depending upon your income’s % of FPL and is also adjusted annually for inflation, but, knowing the limit, you could estimate your income on the low side and plan ahead for the maximum amount you might have to repay. Be aware, though, that the information you supply to healthcare.gov is provided under penalty of perjury.
TRAP: should your MAGI go even one penny over 400% of FPL you become completely ineligible for any PTC. There is no limit on how much you’ll owe back, and you’ll owe back every penny that the feds paid for your insurance premium. So be very careful not to let this happen.
Go to Healthcare.gov. You don’t have to apply right off the bat. There is an estimator, and you can use that to come up with the maximum PTC you’ll get. I say “maximum” because remember from the beginning of this post that your actual PTC will be the lesser of the amount the estimator gives you or the amount of the premium for the policy you select. The PTC for which the estimator will say that you are eligible is determined by taking the premium for the second lowest cost silver plan you could purchase (SLCSP) and subtracting from it your contribution amount (the amount the government expects you to pay for your health insurance). This contribution amount is determined by dividing your MAGI by your FPL to get the percentage of the FPL which your income represents (remember that it must be between 100% and 400% in order for you to be able to get a PTC), then looking at a chart in the instructions for Form 8962 to find your “applicable figure” (a decimal amount ranging from 2% to 9.5%), which you multiply by your MAGI to get your annual contribution amount. 1/12th of that is your monthly contribution, which, subtracted from the monthly premium for your SLCSP, yields the maximum monthly premium tax credit for which you are eligible. You’ll only get the full credit if your monthly premium equals or exceeds that amount. All of this calculation is hidden from view on healthcare.gov, but you can work it out yourself with Form 8962 and its instructions, once you have the information you’ll get in the next step.
Determine your SLCSP premium amount. Once you’ve completed the estimator, you’ll have the opportunity to explore insurance plans which are available to you. Look at silver plans and note the premium amount for the second lowest cost one. I’d recommend printing this out so that you’ll have it for future reference. With this figure you can now work through Form 8962 and satisfy yourself that the PTC given you by the estimator matches what you’ll get when you actually file your taxes. Should there be a discrepancy, it may be due to the plans shown to you not exactly matching the ones you can get, and the problem should clear up when you actually apply.
It’s time to decide whether or not to apply for insurance. There are so many factors to consider: some have to do with your current method of resistance, your filing status, family considerations, need for insurance, etc. See above for some discussion of this. More specifically, you may want to look at the expected amount of PTC and the anticipated amount of federal income tax you will “owe” and decide if the PTC will help you with your resistance or not. Because the insurance premium is based on the number of people in your coverage family and their ages, the premium amounts will vary greatly. Linda and I are both in our 60’s, so our premiums are very high, and it’s almost a no-brainer for us: we want the feds to have to direct all that money toward something other than war. We need the insurance (Linda had to have much-delayed surgery last year.). Our PTC easily exceeds our income tax, so we can redirect that money and more by getting health insurance. But, for younger resisters, the PTC may be much less because the premium amounts will be less. If your minimum contribution amount exceeds the premium for your SLCSP, there will be no PTC at all and therefor nearly no tax advantage (though other advantages exist) at all. I say “nearly” because see strategy 2 below. Even if the ACA does provide you a way to redirect some taxes, though, you may still decide that the whole system is so woefully short of the health care we should have in our society and so completely unjust in its application that you just can’t conscientiously have anything to do with it. Add noncompliance to your list of economically disobedient actions. If you can’t claim a health coverage exemption (page 6 of Publication 5187), add nonpayment of the individual shared responsibility payment to your list of refused taxes.
Assuming you have decided to apply for insurance, it’s now time to do so. On healthcare.gov, click the link to apply. Remember that you need to apply and enroll by Feb. 15. As you go through the application process, there are a few screens which will be of concern to you; resisters have posted some of those concerns on this listserv previously. They have to do with authorizing healthcare.gov to access other records which the feds have in order to determine your eligibility and PTC amount. Again, you can opt out if any of these are unacceptable to you. This will probably be a function of what form of resistance you do. The application process itself has been made quite simple: most questions you answer “yes” or “no”. You will need to know the MAGI amount which you settled on in step 1. At the end of the process the site will generate an eligibility letter: download and print it out. Compare the results with what you got earlier from the estimator. Remember that the letter is misleading: it makes it sound like you’re eligible for a certain amount, but that’s true only if you use it all on premiums. The letter makes it seem that you can get unused PTC back at the end of the year, but that’s only true for PTC which you did not use by virtue of spending your own money on the premium amount. You cannot get back any PTC left over because the insurance premium(s) were less than the amount for which you were eligible. That potential redirection is gone forever.
The web site will ask “How much of your premium tax credit do you want to use?” Your first impulse will be to use it all in order to minimize your premium amount. But resisters may want to opt for something different:
STRATEGY 1: Use the ACA to make your W-4 resistance or nonpayment of estimated tax legal and reduce or eliminate the amount you owe to the IRS.
Many war tax resisters, in order to maintain control over their resistance, file a W-4 form with their employers to reduce or eliminate withholding from their paychecks. This then enables us to refuse to pay taxes when we file our returns. The potential downside is that filing a false W-4 can incur an extra penalty and even criminal charges (though our experience is that the latter never happens and the former is seldom assessed). The failure to pay the IRS in an ongoing manner can also incur the estimated tax penalty. And, of course, the ultimate failure to pay incurs penalties and interest. IT IS POSSIBLE, IF YOUR PTC IS HIGH ENOUGH (and it likely is), TO ELIMINATE ALL OF THIS THROUGH THE ACA. The way to do that is to not use all your PTC to pay your insurance premium, but rather to pay your premium with your own money (which you have because it’s not being withheld from your paycheck or you aren’t sending it in quarterly) and then get that money back on your Form 1040 as a net premium tax credit. In this way, you are sending your money directly to an insurer and never owing it to the U.S. Voila! Redirection. No money for war. No free loan to the feds. Your W-4 was accurate. No penalties and interest. And you have health insurance to boot. What could be better?
The downside: You won’t be able to do the kind of redirection which we’ve been doing, either personally or through alternative funds. Instead of supporting groups and causes which are so important to us, you’re instead supporting insurance companies and, through them, yourself if you use the insurance.
Here’s the nitty-gritty for this strategy: First, determine how much income tax you would owe without using the ACA. You can either fill out a 1040 or you can use IRS Circular E to determine the amount of withholding your employer would normally take from your pay (see NWTRCC’s Practical #1 on controlling withholding). If you are self-employed you can do the same thing by calculating the amount of estimated tax you “should” be sending to the IRS. Come up with a monthly amount which your federal income tax liability would be. This is the amount, then, that you need to pay yourself each month to the insurance company in excess of whatever your premium would have been had you used all of your PTC. In other words, when the web site asks how much of your PTC you want to use, hold the income tax amount back. This strategy is ideal if your PTC amount is equal to or greater than your federal income tax. But even if you can’t eliminate all your federal income tax this way, eliminating some of it is still a good thing.
The web site is going to ask you how you want to group your coverage family. Normally, we think of health insurance as a family matter and get one policy which covers everybody. But on healthcare.gov you don’t have to do that. You can divide your family into different groups and get different coverage for each group. This could be advantageous if you know that one person will have a lot of medical expenses but another probably won’t: select a more expensive low-deductible, low out-of-pocket policy for the person who is going to easily exceed those amounts and give the other person a cheaper policy. See also strategy 2 below for why at least one of you may want to get a less expensive high deductible health plan. Of course, you have to keep in mind how much you can afford to spend on insurance. Getting more than one policy will generate more informational forms from healthcare.gov at the end of the year, but basically you’ll just add the numbers together for filling out Form 8962.
Choose your coverage. Ahhhhh…decisions, decisions! The web site will show you all the policies which are available to you in your coverage area. You have some options for filtering policies, such as looking only at bronze, silver, gold, or platinum policies, or sorting them by premium cost or by out-of-pocket costs, etc. It’s likely to be pretty mindboggling, especially if you’re in a place where a lot of insurance companies are offering a lot of different policies. You’ll have to decide which policy or policies are best for you. I’d start by looking at all policies available and sorting by premium cost, just in case you might get lucky like we did last year and find a low-deductible policy priced lower than your SLCSP. The web site will show your premium cost after the amount of your PTC which you said you wanted to use has been deducted, as well as what the actual premium cost was prior to that deduction. For each option, click on the Details button. Take your time and choose wisely. Pay special attention to the network providers. You want coverage which has your preferred healthcare providers in-network; otherwise your out-of-pocket expenses will skyrocket. If you have to take certain medications, make sure they will be covered. When you’ve selected your policy for each group, click Enroll.
One problem with the ACA is that it defines “affordable” for you, and what it thinks is affordable may, in fact, not be affordable at all for most people. The minimum monthly contribution calculated by healthcare.gov, which you are expected to pay for even silver coverage (which by definition pays only about 70% of the average health care costs of those who have it), may well be too much. And even if you can afford the premiums, you’ll never be able to afford the deductible and out of-pocket expense. So what’s the point?
Well, for one thing, under ACA even the lowest cost health insurance with the highest deductibles and out-of-pocket expenses have 3 big pluses: 1) They all provide preventive care at no cost at all and you don’t have to meet the deductible to get it. This is no small thing: it includes all manner of immunizations, screenings for a myriad of diseases and conditions, lab tests, and more. It’s especially good for resisters with children, as they are covered for much more than adults. 2) Even when you do pay for medical services, you will likely pay a lot less than if you did not have the insurance. This is because the insurance companies negotiate the lowest rates they can for services provided by their in-network providers, and as long as you stay in-network, you will never owe more than those negotiated rates. These plan discounts can save you thousands of dollars. They might even pay back the cost of the insurance, if you there is a cost to you. 3) At least there is an annual cap on your medical expenses, however high. You can plan accordingly. A full-on medical catastrophe need not completely wipe you out.
For war tax converters, there’s one more plus to getting even the worst available policy: you are forcing the federal government to pay for something other than war. However small your PTC, that’s a debit to the treasury and, theoretically, cumulatively puts pressure on all other federal spending, including military spending. Yes, I know that the first victim of this pressure is, and already has been, other social spending. But possibly, at some point, it could also affect military spending. It is up to us to work for that result. Meanwhile, as shown in Strategy 1 above, getting even the worst policy available can result in immediate war tax conversion of your own taxes.
But is it really the worst policy just because it’s the least expensive? I would argue that it may not be at all:
STRATEGY 2: Take advantage of the cheaper insurance policies to lower your taxes.
If you want to get free health insurance through the ACA, you will most likely have to “settle” for a bronze plan which costs less than the cost of your SLCSP minus your minimum contribution amount. Such a plan will likely be what is known as a high deductible health plan, or HDHP. But even if you can get or afford a “better” plan, I encourage you to consider an HDHP and run some more figures to see if it would make sense for you. Why? Because an HDHP can allow you to set up something called a Health Savings Account (HSA), and for resisters looking for ways to lessen their taxes legally, this is one amazing option. Make sure the plan you choose is HSA eligible; you can tell by clicking on Details for the plan and looking at the last item in the pop-up.
A HSA is a tax-preferred account which you establish for the purpose of paying your medical expenses. There are all sorts of detailed requirements for being able to establish one and for determining how much you can put into one, but the bottom line is that you affect your taxes 3 ways: the money you put into the account is deducted from your income, so you pay no tax on it. The money you take out of the account is still not taxed, so long as it is spent on qualified medical expenses. And the money which the account “earns”, through interest or investment, is also tax-free so long as it is spent on qualified medical expenses. Given that a HDHP has a high deductible and out-of-pocket costs, you’ll probably be spending your own money on health care, so it may as well be money on which you don’t owe taxes. You may find that you are better off taking the premium amount which you would have spent on a silver plan and instead putting it into a HSA. And, since this will lower your adjusted gross income, it will also lower the income taxes you will “owe”. This little trick could also be exactly what you need to do to get your income below the 400% of FPL which would make you ineligible, or could increase your PTC by reducing your MAGI, thus making the policy cost you less. It’s a weird spiral sort of thing.
We found another use for the HSA: you can use it to actually increase your income, so long as you shelter the added income by putting it into the HSA. In our case, being forced into a HDHP has allowed us to apply for Linda’s Social Security benefit. We could not do that last year because the added income would have made us ineligible for the insurance she so badly needed. But this year we can set up an HSA (We’ll actually establish 2: one for each of us.) and, by putting her Social Security into them, actually decrease rather than increase our income (because only part of your social security benefit is taxable but all of the HSA contribution, up to the limit you can contribute, is deductible)! We’re reducing the income tax we “owe” while at the same time saving for medical expenses.
If you want to explore the HSA strategy, get IRS Publication 969 and Form 8889 and its instructions. I’ll warn you up front: this is one of the most convoluted and unfathomable things I’ve ever dealt with, but if you persevere you may find it very worthwhile.
Another warning: despite the length of this post, I’ve actually tried to simplify things. The truth is that all the above eligibility considerations and PTC calculations are actually made on a monthly rather than an annual basis, so doing your taxes just got 12 times harder at a minimum, unless nothing changes over the course of a year. But unless you already signed up for Obamacare, then something will have changed this year when you do so. It’s complicated, but you can do it.
So, in summary, the Affordable Care Act, in addition to offering many of us health insurance when before we could get none, also offers new possibilities for war tax resisters to reduce, convert, or even eliminate taxes which go to war. We should include this method in our long list of methods for doing WTR and encourage our counselees to seriously consider the pros and cons of using this law. We should also develop additional strategies using the ACA, as I’m sure the two I’ve given above are not the only ones possible.
(Be sure to contact NWTRCC if you have a different experience with your applications or have any questions about the ACA and war tax resistance! This is a complex issue and one we are continuing to track and develop our knowledge on. Thanks to Robert for laying out his knowledge so thoroughly here. – Erica)