ACA Health Insurance Deduction for Self-Employed

[Ian S]

Just a headsup to the self-employed doing their own taxes and having the complication of an insurance premium tax credit. At least with H&R Block, it appears you should use the gross amount of the premiums when asked for that number because once you later fill in the information from Form 1095-A, the software will go back and reduce the amount you entered for premiums paid by the amount of the insurance premium tax credit.

 

[CRLLS]

I used TurboTax. I entered nothing on the Health and Long Term Care Insurance Deduction Worksheet just like TT said to do if you are entering info for 1095A later. Maybe H&R Block got it wrong? Or did Turbo Tax get it wrong?

 

[Ian S]

I used TurboTax. I entered nothing on the Health and Long Term Care Insurance Deduction Worksheet just like TT said to do if you are entering info for 1095A later. Maybe H&R Block got it wrong? Or did Turbo Tax get it wrong?

Not sure it's wrong either way but H&R Block should at least include a clarification since the interview does the self employed insurance section before the 1095A. It actually makes sense to put in the gross amount since you might have not taken the tax credit when you signed up for the policy. Sounds like TT did it right although I'm used to the order H&RB uses.

 

[Sue J]

I'm dealing with this while doing my son's Schedule C. The 1040 instructions says that the insurance plan must be established under your business. Not sure what that means. He is a sole proprietor with no employees. He got his policy through HealthCare.gov. He got a subsidy throughout the year.

Without any Self Employed Health Insurance Deduction on the 1040 he's getting additional subsidy on the Form 8962 above what he got all year.

I've tried using Pub 974 to see if he can take anything for the Self Employed Health Insurance Deduction. Between worksheets P, W and X I feel like I'm going around in circles! The Simplified Method is not simple and the iterative method is crazy!

So my question is - what does "established under your business" mean when you buy through HealthCare.gov?

And is there a more direct way to calculate the Self Employed Health Insurance Deduction? Would it be reasonable to take the difference between his total premiums paid minus the additional subsidy he's getting back with the PTC reconciliation and call that the Self Employed Health Insurance Deduction?

We didn't deal with this last year because he got back additional subsidy that was equal to the premiums he paid.

 

[gauss]

What about this? IRS Tax Tip: Don’t Miss the Health Insurance Deduction if You’re Self-Employed

If you’re self-employed and file Schedule C, C-EZ, or F, the policy can be in your name or in your business’ name.

 

[Sue J]

What about this? IRS Tax Tip: Don’t Miss the Health Insurance Deduction if You’re Self-Employed

Yes, I think it would qualify.

But the calculation gets complicated when you got the insurance through HealthCare.gov and received a subsidy.

 

[gauss]

But the calculation gets complicated when you got the insurance through HealthCare.gov and received a subsidy.

Agreed - This return would be too complicated to do at our volunteer tax site. We would need to send you to a paid preparer. As such, I get to avoid Pub 974.

Perhaps an extension to file is appropriate at this point?

-gauss

 

[pixelville]

At least conceptually, my understanding is that, the final (adjusted) premium paid out of pocket can be taken as health insurance deduction for self-employed (but limited by your Sch C profit).

For instance,
Policy premium = $12000
Advance PTC (subsidy) = $8000
Your initial cost $4000 (during the year)
Let's say you had over-estimated your income during ACA application and you will get back an additional $1000 in PTC
Net Premium Tax Credit (Line 69) = $1000 (on your tax return)
Therefore, your final insurance premium out-of-pocket = $4000-1000 = $3000 (can be the amount on Line 29 as deduction).

Or, if you had to pay back part of PTC
Policy premium = $12000
Advance PTC (subsidy) = $8000
Your initial cost $4000 (during the year)
Let's say you had under-estimated your income during ACA application and you will have to pay back $1500 in PTC
Excess advance premium tax credit repayment (Line 46) = $1500 (on your tax return)
Therefore, your final insurance premium out-of-pocket = $4000+1500 = $5500 (can be the amount on Line 29 as deduction).

 

[Sue J]

Thank you pixelville. That makes sense to me, too.

Using tax software gave me conflicting results. Using Pub 974 worksheets gave even different results. For all the calculations his deduction would be very small and the resulting tax savings only 10% of that.

The cost of a paid tax preparer would be much larger than any tax savings.

Policy premium = $2255
Advance PTC = $1584
Cost for the year = $671
Net Premium Tax Credit Line 69 = $388
Possible Self Employed Health Insurance Tax Deduction (Line 29) = $671-$388= $283
Tax savings (10% bracket) = $28

If it's so simple then why isn't it laid out like this in the tax programs? Also, when the $283 is deducted it lowers the AGI, which results in a now larger PTC, which means that the Self Employed Health Insurance Tax Deduction should be smaller.

 

[kaneohe]

Agreed - This return would be too complicated to do at our volunteer tax site. We would need to send you to a paid preparer. As such, I get to avoid Pub 974.

Perhaps an extension to file is appropriate at this point?

-gauss

Doesn't Tax-Aide have help lines you can consult? Don't you feel terrible when you have to send someone away where the only thing guaranteed is a charge.....and not necessarily the result?

 

[Ian S]

I've tried using Pub 974 to see if he can take anything for the Self Employed Health Insurance Deduction. Between worksheets P, W and X I feel like I'm going around in circles! The Simplified Method is not simple and the iterative method is crazy!

So my question is - what does "established under your business" mean when you buy through HealthCare.gov?

And is there a more direct way to calculate the Self Employed Health Insurance Deduction? Would it be reasonable to take the difference between his total premiums paid minus the additional subsidy he's getting back with the PTC reconciliation and call that the Self Employed Health Insurance Deduction?

We didn't deal with this last year because he got back additional subsidy that was equal to the premiums he paid.

I'd advise not trying to do the calculation yourself because as you've found out, it is tricky to do. Use the tax software as that can readily do the iterative calculation. If it makes a mistake, assuming your input is correct, the software company should assist you in dealing with the IRS.

 

[CRLLS]

But the calculation gets complicated when you got the insurance through HealthCare.gov and received a subsidy.

TurboTax made mine very easy. nothing complicated at all. Just a few straight forward entries and the software took care of everything else. This part took a few minutes, tops.

 

[gauss]

Doesn't Tax-Aide have help lines you can consult? Don't you feel terrible when you have to send someone away where the only thing guaranteed is a charge.....and not necessarily the result?

Indeed there are help lines. My site was ready to send someone away recently (African immigrant with spouse who died prior year still in Africa).
The lady had a TIN, the late husband did not.

I found a solution by calling the help line and felt great about it.

That all being said, there are "out-of-scope" returns that we can't prepare under our program. We are not personally shielded from liability if we start doing this. We have to bring in others in the process to complete a return so they would be liable too. We are untrained and uncertified in these areas. The whole site could be shut down and the leadership released if we get involved with this.

That being said, we always try to interpret things to make them in-scope if possible, but claiming the deduction for 1040 line 29 "Self-employed health insurance deduction" is clearly out-of-scope.

I would probably try to estimate the value of the deduction, and the net effect on their taxes. I would then present an option to the taxpayer to either have us prepare the return without claiming the deduction or refer them to a paid preparer with the possibility of getting the extra deduction if it makes sense to them. A lady had a $7,500 casualty loss that we couldn't process recently and she was in a mid-high tax bracket. She wisely went to a paid preparer.

I am the sites ACA expert so all the hard questions about this come to me. Last year was a fiasco, pub 974 wasn't even written for most of the season. I was thankful when Part IV and Part V of 8962 were deemed out of scope for 2015 by the IRS itself.

-gauss

 

[zenzy]

My 2014 return was just audited because the PTC as calculated by Turbo Tax was a hefty amount. The IRS examiner wanted copies of the 1095-A, 8962 and 12 pages of bank statements showing the insurance premium autodraft for each month. Case is still open.

 

[kaneohe]

.
......................................
That being said, we always try to interpret things to make them in-scope if possible, but claiming the deduction for 1040 line 29 "Self-employed health insurance deduction" is clearly out-of-scope.............................

-gauss

gauss, thanks for that nicely detailed post. Also for the education here.....I
have seen things in the past about self-employed health insurance deduction but for some reason always thought it was an expense on Sch C and not a stand-alone adjustment on the 1040. I didn't see any restrictions on Sch C
in the 4012 but now realize that the 1040line 29 is not listed in the in-scope
items.

 

[MildlyEccentric]

I ran into an issue when entering my 1095-A information. I noticed the 1095-A form from healthcare.gov had zeros in Part III, column B which is the monthly second lowest cost silver plan (SLCSP) premium. The healthcare.gov website says "the SLCSP premium is incorrect if Part III, Column B has a “0” or is blank for any month someone in your household had the Marketplace plan." The website has a tool (https://www.healthcare.gov/tax-tool/) to determine the correct amount to enter in the form.

Correcting this error made a difference of over $7,000 in my taxes. The amount was large because I initially elected to not accept a premium tax credit as I did not want to repay the credit if my income went over the subsidy cliff.

 

[Sue J]

My 2014 return was just audited because the PTC as calculated by Turbo Tax was a hefty amount. The IRS examiner wanted copies of the 1095-A, 8962 and 12 pages of bank statements showing the insurance premium autodraft for each month. Case is still open.

Oh, great.

We never got our 1095-A for 2015 this year and I've been dealing with HealthCare.gov since Feb 1 trying to get this cleared up. I've called multiple times to check if progress had been made. They called on March 14th to tell us the issue was resolved and our form would be mailed out. Still never got it so I called earlier this week and was told it was mailed on March 22nd. That's more than 2 weeks ago.

I asked of it could be mailed again, or it's even easier to just post it to our account. The representative said I'd just have to wait.

I may call back again and start making demands. Calling them is so awful - 20-30 minutes on hold and then when I finally get a person I'm put on hold again every time they need to look at something or ask someone else a question. I've called during the day, in the evening and after midnight and every time, it's the same awfulness.

My last representative kept saying, "I do apologize" and I asked her if she says that all day long. Yes, she does.

I haven't filed our taxes yet, but in anticipation of it being questioned later I will collect documentation and keep it in our tax file. We changed banks in January so I don't have access to that year's bank statements.

I have all the info that will be on the 1095-A so I can go ahead and file. I wanted the form in hand because I don't trust HC.gov to get this right and follow through.

 

[CRLLS]

My 2014 return was just audited because the PTC as calculated by Turbo Tax was a hefty amount.

Well isn't that a fine how do you do? 2015 was the first year for us on ACA so I have no reference point for filing. Further, I am self employed and my DW worked the first 3 months with insurance thru them. We were only on ACA for 9 months complicating matters a little bit. Have you had TT involved in the audit? Any issue with the software?

 

[zenzy]

Well isn't that a fine how do you do? 2015 was the first year for us on ACA so I have no reference point for filing. Further, I am self employed and my DW worked the first 3 months with insurance thru them. We were only on ACA for 9 months complicating matters a little bit. Have you had TT involved in the audit? Any issue with the software?

No I did not purchase the Audit Defense product from Turbo Tax but I don't need it. I called the number on the letter and arranged for the IRS examiner of my tax return to call me so I could discuss it with her. During the conversation she asked me if my 8962 reconciled with my 1095-A. Of course I said yes. All I have to do is prove that I paid the premiums, don't need help from a CPA.

 

[gauss]

Sue J wrote:
We never got our 1095-A for 2015 this year and I've been dealing with HealthCare.gov since Feb 1 trying to get this cleared up. I've called multiple times to check if progress had been made. They called on March 14th to tell us the issue was resolved and our form would be mailed out. Still never got it so I called earlier this week and was told it was mailed on March 22nd. That's more than 2 weeks ago.

I asked of it could be mailed again, or it's even easier to just post it to our account. The representative said I'd just have to wait.

I may call back again and start making demands. Calling them is so awful - 20-30 minutes on hold and then when I finally get a person I'm put on hold again every time they need to look at something o...

Sue,

Can you log into healthcare.gov, under your account, to access your 1095-A?

-gauss

 

[Sue J]

Sue,

Can you log into healthcare.gov, under your account, to access your 1095-A?

-gauss

Oh, if it was only that simple! It goes much deeper than that.

I checked my account in January and nothing was posted. So, on Feb 1 I called. Their records show we did not have insurance through them in 2015. Our account shows that we submitted an application on 1-1-15 and then cancelled it. This is absolutely wrong. We submitted an application, enrolled, and paid the first month in November of 2014. They were not able to tell me how this got so screwed up.

The next step was to "escalate" the issue and I got an escalation number. I called again a few days later to check on the status. Of course, nothing had been done. I asked to speak to a supervisor and using our ages, zip code and income she verified the numbers that I already knew to expect to be on the 1095-A.

I called every few weeks to check on this and was always told it was not yet completed. Finally on March 14 they called us and said it had been researched and the issue was resolved and our forms would be in the mail to us.

By April 4th we still hadn't received anything in the mail and nothing was posted to our account so I called again. This time they said that they were mailed to us on March 22nd. which was almost 2 weeks earlier.

I called again yesterday and I was told I'd just have to wait. So I asked for a supervisor and got some new info.

They were not mailed to us on March 22nd. On March 22nd the results of the resolved issue were submitted to ACCENTURE, which is the data management company who generates 1095-A forms. I looked up who they are and they are the company that was contracted to straighten out the horrible debacle that happened with the launch of the original Obamacare website in 2013. And they've been managing things since then.

This seems to be good news. Accenture processes these things in 14 business days and will mail the forms and also upload to our account. I expect that if things go as stated (HA!) that they will show up on our account, or in the mail, early next week.

No one has been able to tell us why this got so screwed up. We completed all our Obamacare application stuff, paid and got the response from the insurer in late 2014. We got a hefty subsidy and got a reduced bill and paid every month. Never had a sign that anything went wrong. I think it was a severe glitch on their end.

Just in case this is an IRS question later I went to the insurers website and in our accounts found the contract info for each of us. It shows that we had insurance all year, the contract numbers, the total cost, the APTC subsidy and the premium cost to us. I also have last year's invoices and payment info. I also have the Certificate of Group Health Insurance Plan Coverage letters from the insurer for 2015.

 

[Sue J]

This no longer relates to the health insurance deduction for self employed. My last post was about how HealthCare.gov never issued us our 1095-A forms.

Well we finally got our forms today! They have been posted online at our account and I downloaded them and put them in our 2015 tax folder. I went ahead and filed our taxes in April, including the 8962, because I knew what the numbers should be. The forms are exactly as I had expected, just 3 1/2 months late.

We are still waiting for our refund. The IRS site says that it's still being processed. Now that I have the actual, OFFICIAL forms, I can be patient.

Just wanted to update.