How is self employment health insurance deduction calculated?

[jluftman57]

I am self employed with an ACA individual policy paid out of the business and I did not receive a subsidy for 2017.  After inputting my 1095-A information I went to the 1040 line 29 worksheet and input my Medicare wages on line B.  After doing this, the text at the bottom of the worksheet gave me my adjustment which was placed on 1040 line 29 (self employed health insurance deduction).  The problem is that my total premiums on 1095-A were $14325 but the adjustment (and 1040 line 29 entry) was only $8108.  I am unable to find where, why or how this was recalculated 

[DanielV01]

Two questions:  How much net self-employment do you have, and are you receiving any Premium Tax Credit as a part of your return?  You may not have claimed subsidies throughout the year, but if you qualified for them they will be applied on your tax return now.  Both of those items affect how much deduction you are entitled to claim.

[jluftman57]

My total income (line 22) is $76582. Subtract the $8108 and my AGI (line 37) is $68474.
(W2 wages $47925, K1 $26239)  Medicare wages $33600 for the line 29 worksheet.

I did not claim or receive any subsidy as the threshold for me is an AGI of $63720.

If I override line 29 with the actual premium amount of $14325 my AGI becomes $62257, which gives me a refund (subsidy).

[jluftman57]

How can I efile if I do an override?

[DanielV01 · Accepted solution]

That is the delicate balance of the deduction.  Your deduction is first limited to the amount of self-employment income.  Clearly, that's not at issue here because you have more self-employment income than you do healthcare premiums.  But the Premium Tax Credit can also interfere with the calculation, and there's no real "worksheet formula" that can work it out, because the solution is a true "chicken-and-egg" problem.  

Here's what the IRS says:  your self-employment deduction cannot be greater than the difference of the actual premium amount minus any credit you receive.  Problem is:  when you put the full deduction, you create more credit, so the numbers don't line up.  So the IRS says you can use any method to get the correct balance, and that's literally what I've had to do, because when you lower the deduction, the credit goes down also.  

The manual override is the solution, but you will probably have to work the numbers several times so that, in the end, the formula is:

Health Insurance Premiums minus Premium Tax Credit is equal to or greater than the Self-Employed Health Insurance deduction, and the deduction must be equal to or less than your eligible Self-Employment income.  

[jluftman57]

Just to be clear, and assist anyone else looking for this answer, Form 8962 is the Premium Tax Credit and line 8a must be greater than line 26, correct?

Not a very elegant solution.  Nothing about ACA is easy.  I wish TT had better workflow for this.  Thank you very much for your help!

[jluftman57]

One more question on this (Daniel, I hope you get this!).  With the solution being a manual override, can I efile???

[DanielV01]

Yes, you may e-file.  I personally have to do this on my own return.  There's not a software program that I'm aware of that can handle these calculations in the purest form, you kind of have to go back and forth until the numbers harmonize.   And, I agree, some of the unintended consequences of the ACA are not that easy to calculate on the forms.

[jluftman57]

Wasn't sure you saw the comments after the question was answered so I called Turbo Tax.  My understanding is that TT can only use forms and worksheets provided by the IRS, so there's no blame with TT not being able to handle this.  I was also told that I cannot e-file when there is an override (not an issue anymore).  

Just to provide additional context, I found a very interesting discussion on this:  <a rel="nofollow" target="_blank" href="https://www.healthinsurance.org/faqs/my-premium-subsidy-is-dependent-on-my-agi-but-im-self-employed-...>

as well as a calculator to do the numbers that need several iterations as you described:  <a rel="nofollow" target="_blank" href="https://cims.nyu.edu/~ferguson/Calculator%20SE%20ACA.html">https://cims.nyu.edu/~ferguson/Calculator...>

Hope this helps others in the same situation!

[pfschmitz]

Is there a way to do an eFile if I have an override?

[DoninGA]

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@pfschmitz wrote:

Is there a way to do an eFile if I have an override?

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If you override a calculated field on a form or schedule when in Forms mode, you will negate the TurboTax 100% Accurate Calculation guarantee and you will not be able to e-file the tax return.