06 May What happens when you switch from Obamacare to Medicare?

Q. What happens when you switch from Obamacare to Medicare? Can someone continue to get an Affordable Care Act premium tax credit until Medicare coverage starts? IRS 2019 Publication 974 states in an example that you can. In other words, if your birth month is September and you sign up for Medicare in November, your Medicare coverage starts Feb. 1. You should be able to continue to get your premium tax credit Feb. 1, even though you turned 65 earlier in September, right?
— Confused

A. It’s a great question.

You cited a 2019 IRA publication.

Per Publication 974, for use in preparing 2020 tax returns, cancellation of the Premium Tax Credit (PTC) depends on when Medicare Part A is effective, said Martisha Patterson, a certified financial planner with Peapack Private Wealth Management in Bedminster.

She said if you claim Social Security benefits before turning 65, you will be signed up for Medicare Part A automatically when you turn 65.

“You are no longer eligible for the PTC starting with the month you become eligible for Medicare Part A, assuming you receive Part A free of charge,” Patterson said.

If you are signing up for Part A and you are required to pay for Part A coverage, coverage becomes effective — and the PTC is no longer eligible — per the chart below.

Patterson said based on the IRS website, PTC eligibility is evaluated on a prorated basis. Individuals are entitled to the credit for as long as they are (1) covered through the Marketplace and are; (2) NOT eligible for coverage through an employer or government health plan.

She offered these examples.

Say someone was covered by a Marketplace plan, was receiving Social Security prior to age 65 and was automatically enrolled in Medicare Part A on Sept. 1, 2020 — the month in which they turned 65. They would only be eligible for the PTC from Jan. 1, 2020 – Aug. 31, 2020.

Then imagine another person was covered by a Marketplace plan and was not receiving Social Security prior to age 65. Although the person signed up for Medicare in November, the effective date for Part A is retroactive, so the earliest coverage date would be September 2020. They would only be eligible for the PTC from Jan. 1, 2020 – Aug. 31, 2020.

Patterson said it’s important to note that the American Rescue Plan of 2021 suspended the requirement that taxpayers increase their tax liability by all or a portion of their excess advanced payments of the PTC for 2020.

“In normal times, the taxpayer in the scenario above would be subject to a prorated liability based on the time they became ineligible for the credit,” she said, noting the example you asked about would have a period of ineligibility from September 2020 to December 2020.

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This story was originally published on May 6, 2021.

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