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When Can You Claim a Tax Deduction for Health Insurance?
Old 11-02-2015, 05:16 PM   #1
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When Can You Claim a Tax Deduction for Health Insurance?

So, I'm thinking about to ACA or not ACA this year and am reading up when I have the question about dealing with the ACA tax credit at tax time.

Let me back up a bit.

Currently, getting insurance not from the Marketplace, I pay all my premiums on my own and recording the premium amount paid as some of that might be deductible come tax time.

But if one gets tax credits with ACA, what is deductable and what is not?

I did some searching and found a turbotax blog (paragraph mentioning subsidy quoted):

Quote:
If you received a subsidy or premium tax credit to purchase an insurance plan in the Health Insurance Marketplace through the Affordable Care Act, any advanced-payment subsidy that lowered the cost of your health insurance premiums cannot be claimed as a tax deduction. However, the money you paid out of your own pocket for your premiums might be tax deductible.
When Can You Claim a Tax Deduction for Health Insurance? | The TurboTax Blog

Let's say, I sign up for a plan via the Marketplace and decide to pay all the premium myself first, then at tax time get a refund on the tax credits I qualifed for. Since I paid "out of pocket" initially, does that mean what I paid is deductible? Or is that double dipping since I got a refund?


I hope I'm explaining my questions properly. Thanks.
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Old 11-02-2015, 05:34 PM   #2
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Sounds like if you deducted it all and later got the subsidy in your refund, you'd have to claim that as income the next year. Just a guess, but Turbotax will probably have a way to balance it out before you file.


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Old 11-02-2015, 05:41 PM   #3
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Quote:
Originally Posted by easysurfer View Post
So, I'm thinking about to ACA or not ACA this year and am reading up when I have the question about dealing with the ACA tax credit at tax time.

Let me back up a bit.

Currently, getting insurance not from the Marketplace, I pay all my premiums on my own and recording the premium amount paid as some of that might be deductible come tax time.

But if one gets tax credits with ACA, what is deductable and what is not?

I did some searching and found a turbotax blog (paragraph mentioning subsidy quoted):



When Can You Claim a Tax Deduction for Health Insurance? | The TurboTax Blog

Let's say, I sign up for a plan via the Marketplace and decide to pay all the premium myself first, then at tax time get a refund on the tax credits I qualifed for. Since I paid "out of pocket" initially, does that mean what I paid is deductible? Or is that double dipping since I got a refund?


I hope I'm explaining my questions properly. Thanks.
Believe that would be double dipping. In TT you enter all of your ACA 1095 information (premiums, subsidies, etc) in the Health Insurance section and then based on your income it would figure your subsidy if you don't take it all along.

Under medical expenses in schedule A TT specifically states to NOT include any medical insurance premiums paid to Healthcare.gov or your state exchange.

Hope this helps.
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Old 11-02-2015, 05:41 PM   #4
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Anything you pay for a premium, net of subsidy and refund of subsidy (if any), may be directly tax deductible if you are self-employed. And even if you are not self-employed they may be deductible on Schedule A to the extent they exceed 10% of your AGI.

What that means is that for most people who buy their own individual health insurance and aren't self employed typically have little, if any, tax deduction for the premiums.
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Old 11-02-2015, 05:45 PM   #5
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Originally Posted by RockyMtn View Post
Under medical expenses in schedule A TT specifically states to NOT include any medical insurance premiums paid to Healthcare.gov or your state exchange.
I'm not sure that's accurate. If you bought an individual policy on the exchange which would have cost $10,000 unsubsidized but you received a $4,000 tax credit, as far as I can tell the remaining $6,000 can be included in your medical expenses on Schedule A. You could not claim $10,000 in expenses because that would be double-dipping on $4,000.

I could be wrong, but that's how I've read it.
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Old 11-02-2015, 05:51 PM   #6
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Originally Posted by ziggy29 View Post
I'm not sure that's accurate. If you bought an individual policy on the exchange which would have cost $10,000 unsubsidized but you received a $4,000 tax credit, as far as I can tell the remaining $6,000 can be included in your medical expenses on Schedule A. You could not claim $10,000 in expenses because that would be double-dipping on $4,000.

I could be wrong, but that's how I've read it.
This is my understanding as well.
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Old 11-02-2015, 05:56 PM   #7
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Originally Posted by ziggy29 View Post
I'm not sure that's accurate. If you bought an individual policy on the exchange which would have cost $10,000 unsubsidized but you received a $4,000 tax credit, as far as I can tell the remaining $6,000 can be included in your medical expenses on Schedule A. You could not claim $10,000 in expenses because that would be double-dipping.

I could be wrong, but that's how I've read it.
Check TT 2014 Home and Business Edition...go to Personal/Deductions and Credits/Medical Expenses/Enter Insurance Premiums. Second paragraph..."Do not include premiums paid pre tax through your paycheck, self employment health insurance premiums, or premiums paid through Healthcare.gov or your state marketplace or exchange."
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Old 11-02-2015, 06:07 PM   #8
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Originally Posted by RockyMtn View Post
Check TT 2014 Home and Business Edition...go to Personal/Deductions and Credits/Medical Expenses/Enter Insurance Premiums. Second paragraph..."Do not include premiums paid pre tax through your paycheck, self employment health insurance premiums, or premiums paid through Healthcare.gov or your state marketplace or exchange."
I agree that you should be able to write off the amount that was out of pocket to the extent that it exceeds 10% of income and you itemize with schedule A. Maybe the TT program takes the premium you paid from their "Health Insurance" section and ports it over to Schedule A.

I'm strictly regurgitating what TT has under their Schedule A insurance premium expense deductions instructions.
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Old 11-02-2015, 06:08 PM   #9
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Originally Posted by RockyMtn View Post
Check TT 2014 Home and Business Edition...go to Personal/Deductions and Credits/Medical Expenses/Enter Insurance Premiums. Second paragraph..."Do not include premiums paid pre tax through your paycheck, self employment health insurance premiums, or premiums paid through Healthcare.gov or your state marketplace or exchange."
IMO, either they reconcile this elsewhere in their "interview" process of entering all your data (perhaps when you enter 1095-A information and such) or it is wrong. Hopefully it's the former.

Here's what Intuit themselves wrote about this:

When Can You Claim a Tax Deduction for Health Insurance? | The TurboTax Blog

Quote:
If you received a subsidy or premium tax credit to purchase an insurance plan in the Health Insurance Marketplace through the Affordable Care Act, any advanced-payment subsidy that lowered the cost of your health insurance premiums cannot be claimed as a tax deduction. However, the money you paid out of your own pocket for your premiums might be tax deductible.
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Old 11-02-2015, 06:10 PM   #10
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Quote:
Originally Posted by RockyMtn View Post
Check TT 2014 Home and Business Edition...go to Personal/Deductions and Credits/Medical Expenses/Enter Insurance Premiums. Second paragraph..."Do not include premiums paid pre tax through your paycheck, self employment health insurance premiums, or premiums paid through Healthcare.gov or your state marketplace or exchange."
One cannot use TT for accounting advice. The statement above may just mean that TT will handle premiums paid through Healthcare.gov on another form or area within the program. I'm not sure, but be careful how you use tax software for advice.
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Old 11-02-2015, 06:12 PM   #11
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We receive ACA credits for a portion of our premiums and the unsubsidized portion, the part we pay out of pocket, is a deductible business expense because we are self employed.
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Old 11-02-2015, 06:16 PM   #12
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One cannot use TT for accounting advice. The statement above may just mean that TT will handle premiums paid through Healthcare.gov on another form or area within the program. I'm not sure, but be careful how you use tax software for advice.
I am not foolish enough to use TT for accounting advice. I am simply stating what TT instructions said last year. If you don't believe me go look it up. I also stated that it is possible that the net premiums paid are transferred over to schedule A through their Health Insurance section.
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Old 11-02-2015, 06:16 PM   #13
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We receive ACA credits for a portion of our premiums and the unsubsidized portion, the part we pay out of pocket, is a deductible business expense because we are self employed.
Yes, if you are self-employed the deduction is much more generous, as it is not subject to the Schedule A requirement of only being deductible above 10% of your income.
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Old 11-02-2015, 06:20 PM   #14
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You could also use the free version of TaxAct (either online, or loadable on your PC) and create a 2nd provisional return to see if both tax software packages treat this the same way.



EDIT:


I just checked TaxAct and they seem to handle it properly


- Medical and dental care insurance premiums (other than self-employed)


(offset by)
- Adjustment for Premium Tax Credit


There is also a general warning box that reads:
"Do not include expenses reimbursed , paid by others, paid with pretax dollars or claimed elsewhere on your return"

-gauss
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Old 11-02-2015, 06:51 PM   #15
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Thanks for all the answers. After some more searching, found this article that posed a similar situation to what I originally asked (but for a self-employed person), then tested with tax sofware:

Quote:
I used Example 2 in IRS Rev Proc 2014-41 as the benchmark. It’s a very straight forward case.

In 2014 a self-employed person bought the second lowest cost silver plan for her family of four from the exchange for $14,000 a year. She did not request any advance credit. Her income before considering the self-employed health insurance deduction was $82,425. The question is how much of the $14,000 she can take as a deduction and how much she can take as a credit.
Quote:
Conclusion: The least expensive (free) edition of TaxACT handled the circular calculations easily. TurboTax Online also did it successfully but you have to upgrade to the more expensive Home & Business edition. H&R Block software gave up without trying.
Read the link for details of the conclusion:

Tax Software Bake-Off: Self-Employed Health Insurance and ACA Premium Tax Credit
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Old 11-02-2015, 06:59 PM   #16
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Originally Posted by gauss View Post
"Do not include expenses reimbursed , paid by others, paid with pretax dollars or claimed elsewhere on your return"
I think the bold-faced part here is the key. What you pay, after subsidies, with after tax dollars is indeed deductible on Schedule A.
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Old 11-03-2015, 08:13 AM   #17
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Do not include expenses reimbursed , paid by others, paid with pretax dollars or claimed elsewhere on your return

Quote:
Originally Posted by ziggy29 View Post
I think the bold-faced part here is the key. What you pay, after subsidies, with after tax dollars is indeed deductible on Schedule A.
Thanks.

Just to clarify, this was the worksheet for schedule A medical/dental expense (eg. supporting detail for schedule A line 1).

As such the reference to "elsewhere on your return" would be to locations other than schedule A.

I think we are both in agreement here.


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