Some of you may be aware of a tax strategy known as 𝗖𝗹𝘂𝗺𝗽𝗶𝗻𝗴. Clumping is where you intentionally pay a bill in December that isn't technically due until January.
The IRS allows clumping for an expense like interest payments or property taxes if you have already been billed and you choose to pay the bill before the due date. You cannot deduct expenses paid early that are not yet considered due. (Paying too early can result in you not being able to deduct that payment at all!)
This definition can actually be stretched beyond the December/January definition. We sometimes do this with Donor Advised Fund (DAF) contributions. Charitable contributions do not have a due date, and you can make them whenever you like. Clumping them together can sometimes make it possible for you to write off some or all of your contributions, when failing to clump them together would result in a smaller or no deduction.
Clumping was a technique that was more widely discussed before interest rates fell into the 2-4% range and when your ability to claim SALT was higher. I'm proposing another application of clumping that I've not seen proposed anywhere else:
𝘼𝘾𝘼 𝙄𝙣𝙨𝙪𝙧𝙖𝙣𝙘𝙚 𝙋𝙧𝙚𝙢𝙞𝙪𝙢𝙨.
👉 You cannot reimburse yourself from an HSA to pay this expense, but you can claim them as an eligible Schedule A expense to the extent they exceed 7.5% of your AGI.
👉 Starting in 2026 the maximum Required Contribution % (RCP) is 9.86% of your ACA MAGI for MAGIs that are 300% of FPL or higher. A 7.5% RCP is about 235% of FPL. This probably means most peopled that have FI/REd will have an RCP that is equal to or greater than the 7.5% needed to deduct medical expenses on Schedule A - it's just many will not be able claim expenses exceeding the standard deduction. But some of you will!
👉 A 7.5% RCP does not directly translate to 7.5% of AGI, unless you purchase the SLCSP and have no other income added back into your ACA MAGI. However, I've found that my RCP is still pretty indicative of how much of my AGI my plan will cost, in part because I don't use the lowest cost insurer.
👉 The IRS generally requires individuals to use cash accounting. This means you must claim expenses in the calendar year you paid the expense.
👉 The IRS treats the repayment of pre-refunded ACA PTCs as the payment of health insurance premiums. However, the repayment doesn't occur until the following year when you file Form 8962 along with your tax return.
👉 No matter how much you tell your state's ACA Marketplace you think you will make, they should still let you cap how much pre-refunded PTCs you receive in a given month - at least mine does.
All of these knobs would seem to let you clump together most of two years' worth of ACA Marketplace insurance premiums into the same year. Any refunded ACA PTCs would also effectively reduce your deductible medical expenses in a given year. So to make this work you have to alternate between collecting as many PTCs as possible in "ON" years and then paying out of pocket for everything in "OFF" years including repaying your pre-refunded PTCs.
This strategy would seem to be most beneficial to people that own a home, especially if they are still paying on a mortgage. This is especially true if the deductible housing expenses barely or don't quite cover your standard deduction, allowing you to leverage the standard deduction in OFF years.
Finally, for people with an HSA, you might opt to deduct HSA-eligible expenses on Schedule A in OFF years, though this probably depends on what sources you are relying on for income during this period. (I suspect claiming against my HSA will be more valuable for me personally.)
𝗣𝗹𝗲𝗮𝘀𝗲 𝘀𝗵𝗼𝗼𝘁 𝗵𝗼𝗹𝗲𝘀 𝗶𝗻 𝘁𝗵𝗶𝘀 𝗶𝗱𝗲𝗮...
Seriously. I just thought of this last night while working on my tax return, just before going to bed. As for myself, I'm not sure this write-off will actually save me much if anything on my own taxes. It doesn't actually let me collect any more PTCs and my ordinary income usually just fills the standard deduction and maybe the 10% bracket. The rest is at long-term capital gains tax rates.
As far as I can tell my "usual" tax bill before completing Form 8962 (ACA PTCs) should run around $1,000 to $2,000 for my remaining years on ACA. However, starting with 2025 I will be itemizing because I financed a home purchase and the interest and SALT should easily exceed the standard deduction. This and the fact that I'd started preparing my tax return made me wonder if there were any other opportunities out there.
Thoughts everyone? Would you be able to use this strategy?