Turbo tax is miscalculating how my Self-employed health insurance deduction after calculating the premium tax credit? How can I fix this?

[rebsrogers]

Self employed and purchased health insurance for my family through the ACA. I received a health care premium credit for some of this  and thought I should be able to put the balance as the Self-employed health insurance deduction. Turbo tax supposedly calculates the amounts - but it there is only about $3000 in the Self-employed health insurance deduction in in Schedule 1 line 16 when the amount I paid after the premium credit is over $5000.

[BillM223]

The Self-employed health insurance deduction (line 16 on Schedule 1 (1040) is not simply the amount you paid in after-tax dollars for health insurance while self-employed; there is a worksheet in the 1040 Instructions for calculating it - see page 89).

What typically catches taxpayers is that the line 16 entry can't be larger than your net profit minus the deductions on line 14 and 15 (the deductible part of the SE tax and the contributions to your Self-Employed SEP, SIMPLE, and Qualified Plans. So increasing your retirement contributions can actually decrease your self-employed health insurance deduction.

Complete the worksheet on page 89, and I think you'll see what happened.

[rebsrogers]

I did check that, and it doesn't apply here. Net-profit from the business minus the deductions on line 14 and 15 is still well over the amount paid in health insurance premiums after the premium credit.

[dmertz]

The iterative calculation prescribed by the IRS in Pub 974 and performed by TurboTax can't always converge on an optimal result.  You might be able to find a more optimal result through trial and error by indicating to TurboTax in the entry of the Form 1095-A that you were not self-employed, then trying various amounts of self-employed health-insurance deduction and finding the amount that gives you the least tax liability without the sum of this deduction and the PTC exceeding the total amount of premiums.

[ReneeM7122]

When applying both the self-employed health insurance deduction and the premium tax credit, keep in mind that you can't double dip. The combined amount of deductions and credits cannot be greater than the total of your eligible premiums.

There are two methods of calculating the Self-Employed Health Insurance deduction, the Simplified Calculation Method and the Iterative Calculation Method.

If Form 8962 is generating with a Premium Tax Credit and you have a SE health insurance deduction on 1040, line 29, then your deduction and credit may be adjusted.  This adjustment is based on the calculations described in Revenue Procedure 2014-41 and Publication 974.  Form 8962 should be reviewed.

Here's a TurboTax article about deducting health insurance when you're self-employed.

@dmertz

[dmertz]

The Simplified Calculation Method and the Iterative Calculation Method are the only methods for with the IRS provides instructions, but are not guaranteed to give an optimal result because the iterative method does not always converge to a solution and instead defaults to a sub-optimal result.  Any calculation method that satisfies the requirement that the sum of the PTC calculated on Form 8962 and the self-employed health insurance deduction does not exceed the amount of health insurance premiums is permitted.  From IRS Pub 974:

CAUTION!  Using the special instructions in this part is optional.  If you are eligible for both a self-employed health insurance deduction and the PTC for the same premiums, you may use any computation method that results in reporting amounts that satisfy the rules for both the deduction and PTC, as long as the sum of the deduction claimed for the premiums and the PTC computed, taking the deduction into account, is less than or equal to the enrollment premiums.

[Critter-3]

Ok ... this is one of those strange things in the tax law ... since the SEHI  adjustment  changes the rest of the return and affects the PTC later  the final adjustment  is not calculated and  added until the PTC is calculated and then the SEHI is adjusted ONLY ONCE.   If you keep recomputing the PTC to adjustment to PTC to adjustment etc   it is like looking into a hall of mirrors and the calculations would never end to the IRS allows you to stop at one calculation.  

For instance ... the out of pocket SEHI amount is say 1000 and is entered as an adjustment then the PTC was now 200 then the SEHI adjustment is reduced to 800 and the cycle stops.   Same thing happens (usually)  if you had to repay some of the advance credit ... so say you now owe 500 back then the adjustment would now be 1500 (1000 + 500).

In my professional program we are required to make the adjustment ourselves and that is how we do it ... we enter the SEHI amount first then complete the 8962 form and see if there is a repayment or more PTC allowed and adjust the SEHI amount  manually ONCE. 

[rebsrogers]

Is there a way to make adjustments to the tax forms in Turbo tax desktop version (or any version)? I just want to deduct the amount I paid out of pocket for my health insurance in the SEHI (annual premium paid minus premium credit). I didn't receive any credit in advance and the self-employed income is substantially more than the premiums. I understand the tax side of it and the circular calculations, my problem is with the turbo tax software.

[dmertz]

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@rebsrogers wrote:

I just want to deduct the amount I paid out of pocket for my health insurance in the SEHI (annual premium paid minus premium credit).

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This isn't a problem with the software.  The [problem is that the SEHI deduction affects AGI which affects PTC which affects the SEHI deduction which affects AGI which affects PTC ...

In cases where the this iterative calculation converges to a particular number, the IRS's iterative method works fine.  In cases where it doesn't converge, generally when AGI is around 100%, 133%, 150%, 200%, 250%, 300% or 400% of the federal poverty level, the iterative defaults to a SEHI deduction that is suboptimal.  In that case you have to accept the result or on your own come up with a value for the SEHI deduction that  produces a better result.  There is no prescribed other method to use for your own calculation, you'll likely just have to try other values for the SEHI and see if it produces a better result without violating the requirement that the sum of PTC and the SEHI not exceed the total premiums.

[Critter-3]

If you used the TT Downloaded version then  in the FORMS mode you can override the amount in question however doing so may keep you from efiling the return  and will void the accuracy guarantee. 

[dmertz]

No override is necessary.  Simply tell TurboTax in the 1095-A section that the insurance is not associated with self-employment.  This will prevent TurboTax from getting involved in determining the SEHI deduction amount or checking to see if the sum of the SEHI deduction and PTC exceeds total premiums.