Incorrect handling of Wisconsin health care costs.

[SK_WI]

My tax advisor encountered a error in TurboTax's handling of health care cost deductions in the WI state package. Wisconsin only allows deduction of Marketplace health insurance plan premiums (Form 1095-A), yet TurboTax is deducting all our expenses (deductibles and other out of pocket costs) from our state AGI.

It seems the only way to get a correct return is to exclude these costs from the input dataset, leaving only the Form 1095 data. This potentially requires two separate TurboTax files, one for Federal, and a modified version to generate correct WI state numbers.

Anyone else encounter this?

[MarilynG1]

Wisconsin allows a deduction for any after-tax medical expenses, not just 1095-A premiums. 

Click this link for more info from the Wisconsin Dept. of Revenue

[SK_WI]

There is nothing on the page you linked that backs up your claim. The state of Wisconsin allows the deception of insurance premiums only. TurboTax 2018 deducted ONLY our health insurance premiums last year. This year it's deducting ALL of our medical expenses. The document you linked and our tax advisor both say TurboTax is wrong.

In addition, I think I have discovered another major error. Wisconsin does NOT allow deduction of HSA contributes from AGI. In TurboTax 2018, AGI was correctly passed from Federal to State BEFORE our HSA contributions were deducted. In TurboTax 2019, AGI is incorrectly transferred AFTER deduction of our HSA contribution.

[BillM223]

"Wisconsin does NOT allow deduction of HSA contributes from AGI."

Wisconsin has allowed the deduction of HSA contributions since 2011. Contributions made through the employer are removed from Wages in boxes 1, 3, and 5 on the employee's W-2. Contributions made directly to the HSA are deducted on line 12, Schedule 1 (1040).

In either case, since Wisconsin starts with federal AGI, the only way to keep HSA contributions out of WI AGI is to make the contributions an addition on line 4 of Form 1. Clearly, there is no addition for such contributions, as a look at the WI Instructions show.

Please note that in 2018 TurboTax worked the same way.

[SK_WI]

Okay, the HSA issue was my misunderstanding as I compared 2018/2019 returns. The deduction is indirect (a subtraction from schedule 1 line 36) in the 2018 1040 shown directly on line 8a in the 2019 1040.

We called the Wisconsin Dept of Revenue and were told that we can deduct ONLY approved health and dental insurance premiums. Uncovered medical expenses (ex: out-of-pocket, co-insurance) are not deductible. Those expenses (which we entered to test against the 7.5% threshold for total health care costs) were not deducted by TurboTax in our 2018 return, but are being deducted in our 2019 return.

If you read Code 01 on page 18 of the WI tax instructions you linked, you'll see that only insurance premiums may be deducted, in agreement with what we were told by WI-DOR on the phone.

[BillM223]

OK, could you help me out here?

Where did you enter these out of pocket expenses?

And where do they appear on the Wisconsin return?

[SK_WI]

Out of pocket expenses were entered in the medical expense section, under "Prescription expenses", "Medical professionals fees" and "Eye care expenses". We entered amounts in those boxes for our 2018 taxes as well. Those expenses did not rise to the Federal 7.5% threshold in either, and we took the standard deduction. We also entered out insurance premiums for our qualified health insurance plan. In 2018, TurboTax deducted only the premiums to compute our AGI. In 2019, TurboTax deducted the insurance premiums AND those other expenses. Our tax advisor flagged that error, which is why I'm here.

[BillM223]

And on what WI form and line are these medical expenses appearing?

[SK_WI]

2018 WI Form 1, line 11

The type code is 01, indicating a deduction for medical insurance premiums. This number should be equal to the sum of Form 1095-A premium payments, but is actually $25 higher.

2019 WI Form1, line 11

The type code is 01, indicating a deduction for medical insurance premiums. This number should be equal to the sum of Form 1095-A premium payments, but is $3 lower than the sum of those premiums PLUS all of our out-of-pocket expenses.

[BillM223]

I am unable to reproduce what you are reporting. If you have the CD/download software or have paid for your Online software, please see this TurboTax FAQ for how to contact TurboTax by telephone where, with your permission, an agent can see your return.

[SK_WI]

I'm continuing to dig. In our 2019 taxes, I've entered various out-of-pocket medical expenses, and insurance premiums from Form 1095-A. Those are two different lines in Personal->Deductions & Credits page, under "Medical". In that section, "Medical Expenses" shows all expenses, both out-of-pocket and insurance premiums. The Affordable Care Act (Form 1095-A) line shows zero for both 2018 and 2019, even though I entered the monthly premiums for both years. Why show them as separate line items in the deductions page if you’re going to lump them together and leave the insurance line at zero?

In 2018, we had premiums of $28,488 (1095-A) and expenses of $14,124, total $42,612

In 2019, we had premiums of $26,952 (1095-A) and expenses of $17,220, total $44,172

On our 2018 WI return, line 11 shows a Code 01 (insurance) deduction of $28513, which is $25 more than the 1095-A total. I can't see how that $25 difference might arise, but the WI deduction is approximately ONLY for our premiums.

On the 2019 State return, line 11, I see a Code 01 (insurance) number of $44169, which is within a rounding error (more on that below) of the $44,172 TOTAL medical expense calculation.

Whether you believe that Wisconsin allows deduction of all medical expenses (your claim) or only insurance premiums (our tax advisor’s claim, seemingly backed up by the state document you linked), TurboTax takes one stance in 2018 and another in 2019. They can’t both be correct unless the law changed. Our tax advisor says that hasn’t happened.

And finally, I'm growing increasingly annoyed by TurboTax's inconsistent use of rounding. The 1095-A Form TurboTax produces provides an annual total of monthly premium payments, using full precision for the summation and rounding the annual total to the nearest dollar. However, the annual total that's used to compute total medical expenses, and is passed to the state forms, is the summation of monthy premiums that are rounded BEFORE summation. This makes it difficult to reconcile the math across the entire tax form. While this is all legal, it's also counterproductive.