Self-employed health insurance deduction disappears with larger IRA contribution

[carolync321]

When I up my larger IRA contribution, the Self-employed health insurance deduction goes away making me owe taxes.

Is this a glitch, or a weird IRS regulation/limitation? It doesn't seem like one would be dependent on the other.

[BillM223]

Is this an IRA contribution or an SEP-IRA contribution?

The SEP-IRA contribution and the self-employed health insurance deduction affect each other in some not-obvious ways, when they approach the size of your business' net income.

[carolync321]

It is an IRA, not a SEP-IRA. It is no where near getting close to my income.

[BillM223]

Hmmn, I agree that this is not obvious.

So your IRA deduction is appearing on line 19 of Schedule 1 (1040)? And there is nothing on line 15 of the same schedule?

On your Schedule SE, did you use the short-form or the long-form?

Do any of the following apply to you?

• You had more than one source of income subject to self-employment tax.
• You file Form 2555.
• You are using amounts paid for qualified long-term care insurance to figure the deduction.

I am reading the instructions for line 16 in the Schedule 1 instructions.

[carolync321]

Yes, IRA deduction on Line 19, nothing on line 15

No other sources of SE income

It's the short form
No form 2555.

Reading the link you sent, I have refer to another Publication because I do get tax subsidy in advance. Logically it doesn't make sense because one deals with self-employment and the IRA contribution is personal.

[BillM223]

OK, so you have insurance from the Marketplace (Affordable Care Act) and you are receive premium tax credit (PTC) through the year to subsidize your premiums. Right?

When you change your Adjusted Gross Income (AGI), you change the amount of PTC that you are qualified to receive.

Does the amount on Schedule 3 (Form 1040 or 1040-SR), line 9 change when you add the IRA contribution?

Is it possible that when you added the IRA contribution that the amount of premium that you had to pay (as opposed to the PTC) went to zero? The less you personally pay for health insurance, the less your self-employed health insurance deduction can be.

[carolync321]

I thought you might have discovered the issue. Nope, line 9 stays exactly the same.

[BillM223]

Are you using the CD/download software? Can you go into Forms mode?

If so, please look at "Health LTC Wks". Please look at lines 1-10, especially line 10, which carries to line 16 on Schedule 1.

If you have this worksheet, then this shows how the line 16 amount is calculated.

[carolync321]

Thanks - I will take a look. I've actually printed out the IRS worksheets and filled them out manually. The IRA contribution is figured in as household income - so that must be pushing out the credit, even though when I figure it manually, it comes out I still should get it. I don't know how they even come up with these convoluted forms.

I will take a look at the forms in TurboTax, and review everything to make sure I didn't hit a wrong button somewhere. Thanks for all you help.

[BillM223]

Let me know...good luck!