Section 3: Deductions & Credits: 14: The ACA and the Premium Tax Credit Flashcards
Question ID: 94815875 (Topic: The ACA and the Premium Tax Credit)
Bowie and Emily are married and file jointly. Marley is their 17-year old son, who they claim as a dependent. They are not eligible for health insurance through their employers, so they purchase their insurance through the Healthcare Marketplace and also receive the Advance Premium Tax Credit. Marley has a part-time job delivering pizzas after school. Marley earns $6,000 in wages during the year and has no other income. Marley will file a return only to get a refund of the tax that was withheld from his paychecks. Do Bowie and Emily have to include their son’s wages as part of their “Household Income” for ACA purposes?
A. No, Marley’s parents do not need to include his income for ACA purposes.
B. If Marley does not file a return, then his income would not have to be included.
C. Only half of Marley’s income must be included in the calculation of household income.
D. Yes, Marley’s parents do need to include his income in household income
Correct Answer Explanation for A:
No. Marley’s income is below the filing threshold for a dependent with earned income, so his parents will not include his MAGI in the Household Income for ACA purposes. The fact that Marley files a return to obtain the amounts withheld from his paychecks is irrelevant (example modified from a VITA “Link and Learn” scenario).
- Form 1095-A,
- Form 1095-B
- Form 1095-C,
Form 1095-A, Health Insurance Marketplace Statement: This form is for individuals who enroll
in Marketplace coverage. This form reports basic information about the insurance company
that issued the taxpayer’s policy, the exchange where he or she enrolled, and it documents the
taxpayer’s coverage for each month.
* Form 1095-B, Health Coverage: This is for employees or taxpayers whose insurance comes
from a source other than the Marketplace.
* Form 1095-C, Employer-Provided Health Insurance Offer and Coverage: Individuals who work
for applicable large employers will typically get this form (employees will also get this form if
they enroll in self-insured coverage provided by an applicable large employer).
Question ID: 95042144 (Topic: The ACA and the Premium Tax Credit)
Businesses that employ more than _____ full-time equivalent employees are required to report to the IRS about the health insurance offered to their employees.
A. 10 employees.
B. 50 employees.
C. 100 employees.
D. 25 employees.
Correct Answer Explanation for B:
The Affordable Care Act provides that employers with 50 or more full-time employees (including full-time equivalent employees) must offer minimum health coverage to their full-time employees (known as Section 6056 rules). To learn more about the ACA provisions that apply to employers, see Publication 5200, Affordable Care Act: What employers need to know.
Question ID: 94815962 (Topic: The ACA and the Premium Tax Credit)
Giselle is single and has no dependents. When enrolling through the Marketplace during open enrollment, she was not eligible for employer-sponsored coverage because her employer was a very small business that did not offer health insurance. On August 1st, Giselle started a brand new job and became eligible for employer-sponsored coverage exactly one month later (on September 1st). Giselle officially discontinued her Marketplace coverage at the end of September. Can Giselle claim the Premium Tax Credit?
A. She can claim the PTC for the months of January through September.
B. She can claim the PTC for the full year.
C. She may be able to claim a PTC for the months of January through August.
D. She cannot claim the PTC because she got an offer of employer coverage during the year.
Correct Answer Explanation for C:
Giselle may be able to claim a PTC for the months of January through August. She may also be able to get a PTC for September, but ONLY if APTC was being paid for her Marketplace coverage, and she informed the Marketplace about her coverage, and the Marketplace was unable to discontinue the APTC for September (this question was modified from an example in Publication 4491).
Question ID: 95042146 (Topic: The ACA and the Premium Tax Credit)
Under the ACA employer provisions, a “full-time employee” is defined as:
A. An employee that works 35 hours per week.
B. An employee that works at least 25 hours per week.
C. An employee that works 40 hours per week.
D. An employee that works 30 hours per week.
Correct Answer Explanation for D:
Under the ACA, a full-time employee is an employee who works on average 30 hours or more per workweek. Employers that have more than 50 employees who meet either of these full-time thresholds are required to comply with the ACA.
The Affordable Care Act provides that employers with 50 or more full-time employees (including full-time equivalent employees) must offer minimum health coverage to their full-time employees (known as Section 6056 rules). To learn more about the ACA provisions that apply to employers, see Publication 5200, Affordable Care Act: What employers need to know.
Question ID: 94815963 (Topic: The ACA and the Premium Tax Credit)
For individuals requesting the Advance Premium Tax Credit, the Marketplace determines whether the employer coverage is “affordable” by comparing ______________________.
A. The employee’s cost of the employer coverage for self-only coverage to household income.
B. The employee’s cost of the employer coverage for Cobra coverage to the household AGI.
C. The employee’s cost of the employer coverage for self-only coverage to the employee’s AGI.
D. The employee’s cost of the Marketplace coverage to average Cobra premiums.
Correct Answer Explanation for A:
In general, for individuals requesting the APTC, the Marketplace determines whether the employer coverage is “affordable” by comparing the employee’s cost of the employer coverage for self-only coverage to household income. (See Publication 4491 for examples).
Question ID: 95033714 (Topic: Net Investment Income Tax)
Roscoe and Arista are married and file jointly. Their MAGI is $562,000. They have net investment income of $62,000 from dividends. They sell their main home that they have owned and lived in for 20 years for $1.2 million and realize a gain of $645,000 on the sale. They also sell a vacation home for $575,000 and realize a gain of $130,000 on the sale. What amount do Roscoe and Arista owe for the net investment income tax? (The NIIT threshold for couples who file jointly is $250,000.)
A. $11,856
B. $23,712
C. $31,806
D. $12,806
Correct Answer Explanation for A:
The net investment income tax is imposed on individuals, estates, and trusts. For individuals, the 3.8% tax is imposed on the lesser of:
The individual’s net investment income for the year, or
Any excess of the individual’s modified adjusted gross income for the tax year over certain thresholds.
Roscoe and Arista may use section 121 to exclude $500,000 of capital gain on the sale of their primary home ($645,000 - $500,000 = $145,000 gain not excluded), but cannot exclude any of the gain on the sale of their vacation home, so their net investment income total is $337,000 ($62,000 + $145,000 + $130,000). Their MAGI over the threshold amount of $250,000 is $312,000 ($562,000 - $250,000). Since this is less than the net investment total, the answer is calculated as follows: $312,000 × 3.8% = $11,856 net investment tax owed. To learn more about the Net Investment Income Tax, see IRS Topic No. 559 Net Investment Income Tax.
Question ID: 94850117 (Topic: Net Investment Income Tax)
Melanie is unmarried and files single. She received the following income during the year:
$180,000 of self-employment income
$29,000 in dividend income
$41,000 in passive income from a limited partnership interest
$20,000 in capital gains
$10,000 in municipal bond interest
$35,000 cash inheritance from her deceased brother’s estate
Based on this information, what amount, if any, does Melanie owe in Net Investment Income Tax?
A. $0
B. $3,344
C. $2,660
D. $630
Correct Answer Explanation for C:
Melanie owes NIIT of $2,660. The Net Investment Income Tax is imposed at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts. Melanie’s modified adjusted gross income exceeds the threshold of $200,000, and her modified adjusted gross income is $270,000 (the municipal bond interest and the inheritance are not taxable and not part of the calculation). Melanie’s net Investment Income is $90,000. The Net Investment Income Tax is based on the lesser of $70,000 (the amount that her modified adjusted gross income exceeds the $200,000 threshold) or $90,000 (her Net Investment Income). She, therefore, owes NIIT of $2,660 ($70,000 x 3.8%).
Individuals will owe the NIIT if they have Net Investment Income and also have modified adjusted gross income over the following thresholds:
Filing Status
Threshold Amount
MFJ, QSS
$250,000
MFS
$125,000
Single, HOH
$200,000
Question ID: 94850058 (Topic: Additional Medicare Tax)
Billy is married, but files “married filing separate” (MFS) from his spouse. He earns $120,000 in wages and an additional $80,000 in self-employment income. He does not have any other type of income for the year. How much additional Medicare Tax will Billy be required to pay in 2023?
A. $675
B. $0
C. $11,475
D. $2,625
Correct Answer Explanation for A:
Billy would be required to pay $675 in additional Medicare Tax. The additional Medicare tax of 0.9% applies to wages, compensation, and self-employment income above specified threshold amounts. Since Billy is filing MFS, his threshold is only $125,000.
Additional Medicare Tax Thresholds
Filing Status
Earned income above:
Married Filing Jointly
$250,000
Single, HOH, QSS
$200,000
Married Filing Separately
$125,000
Based on the thresholds above, Billy would pay the Additional Medicare Tax on the amount by which his earned income exceeds the $125,000 threshold for his filing status, which is $75,000 ([120,000 +$80,000]- $125,000 threshold = $75,000). His Additional Medicare Tax would be 0.9% x $75,000 = $675. To learn more about the additional Medicare Tax, see Topic No. 560 Additional Medicare Tax.
Question ID: 94849934 (Topic: Education Credits)
The American Opportunity Tax Credit has a refundable component. What is the maximum amount of the American Opportunity Tax Credit, if the taxpayer does not have a tax liability?
A. $2,500 credit per tax return.
B. $4,000 credit per eligible student.
C. $2,500 credit per eligible student.
D. $1,000 credit per eligible student.
Correct Answer Explanation for D:
The American Opportunity Tax Credit is a maximum credit of up to $2,500 per eligible student. However, the AOTC also has a refundable component. The refundable portion of the AOTC is calculated as 40% of the value of the credit the taxpayer is eligible for, based on qualifying education expenses. Therefore, if the taxpayer was eligible for $2,500 of the AOTC, but had no tax liability, they could still receive $1,000 (40% of $2,500) as a refund.
Question ID: 94849857 (Topic: Medical, Dental, Vision, and Long-Term Care Expenses)
Cheyenne is an alcoholic. She enters an inpatient treatment facility for alcohol abuse. Which of the following statements is true?
A. Cheyenne can deduct the cost of the alcohol treatment center, but not the cost of meals and lodging.
B. Cheyenne cannot deduct any of the alcohol treatment costs as a medical expense.
C. Cheyenne can deduct the cost of alcohol treatment only if the treatment is administered by a medical doctor in a hospital.
D. Cheyenne can deduct the cost of the alcohol treatment center, including meals and lodging.
Correct Answer Explanation for D:
Cheyenne can deduct the cost of the alcohol treatment center, including meals and lodging. A taxpayer can include in medical expenses amounts paid for an inpatient’s treatment at a therapeutic center for alcohol addiction. This includes meals and lodging provided by the center during treatment. To learn more about what qualifies as a deductible medical expense, see IRS Topic No. 502 Medical and Dental Expenses.
