This is the first in a series of posts that have me a bit conflicted. They could be interpreted as political, and, as advice, some of it may be considered unethical, but the point of the posts is to point out things in the law that provide negative incentives, and, at the same time, point out actions that can have big negative consequences on someone receiving a Premium Tax Credit (hereafter referred to as a subsidy.) They are primarily designed to ensure that people don't make huge mistakes with huge consequences. They should not be interpreted as me suggesting that you manipulate the rules in any illegal or unethical way. If you continue reading these posts you will understand what I mean.
The Premium Tax Credit is calculated based on household income. To quote the IRS Q&A section: "For purposes of the premium tax credit, your household income is your
modified adjusted gross income plus that of every other individual in
your family for whom you can properly claim a personal exemption
deduction and who is required to file a federal income tax return.
Modified adjusted gross income is the adjusted gross income on your
federal income tax return plus any excluded foreign income, nontaxable
Social Security benefits (including tier 1 railroad retirement
benefits), and tax-exempt interest received or accrued during the
taxable year. It does not include Supplemental Security Income (SSI)."
This means that any dependent you are claiming will count against your household income as soon as they are required to file a tax return. This may require a family with working age children to seriously consider the impact of that child taking a job. As soon as the child crosses the filing threshold (generally equal to the single standard deduction) their income counts toward household income and thus reduces the subsidy available. This can be aggravated if the child has sources of non-taxable income such as Social Security from a deceased parent. Social Security alone will not require a child to file a tax return, but if the child gets a job and is thus required to file, the Social Security instantly counts as income when calculating the subsidy.
As an aside, many people get Social Security and SSI confused. The easy way to know you are getting Social Security (which is reported on tax returns) and not SSI (which is not reported) is receipt of a 1099SSA (the long pink form). If you get a 1099SSA, the income is potentially taxable and should be reported to your tax guy to see if it needs to be included on a tax return.
Back on subject...The problem of children getting jobs is exacerbated by the fact that when you apply for the subsidy, you are up to a year ahead of the actual year on which the subsidy is based, so you may not know your child will be working during the tax year in question at the time you apply for the subsidy.
Bottom Line: If you have children who are of an age to get a part time job, you need to consider the impact of that job on your Health Insurance subsidy. This is not me saying don't let them get a job. It's me warning you to pay attention to their income, especially if they are receiving other non-taxable income like Social Security, and make the best decision for your family and household based on what you value with regard to your children working. If they are working, ensure you know if they will be close to going above the filing threshold, and let the exchange know so your subsidy can be lowered during the year, vice having to pay a bunch back on the tax return.
Remember, the worst case scenario is receiving a big subsidy, having household income/size change such that you go above 400% of the poverty line, and not informing the exchange of it. This will result in a VERY ugly tax year!
IRS Q&A on the Premium Tax Credit is HERE