Where do I enter ACA Health Insurance Premium Rebate as income when filing Schedule C?

[kac42]

Last year I asked about this for tax year 2023, and Intuit's response was to list the premium rebate as income, under miscellaneous income on Schedule C.  (https://ttlc.intuit.com/community/taxes/discussion/re-where-do-i-enter-aca-health-insurance-premium-...)

Looking at this again for tax year 2024, I believe this answer may be incorrect, and here's why:  For 2024, I received a premium rebate of $242.  If I list that as miscellaneous income on Schedule C, my AGI goes up by $1201 due to the snowball of self-employment tax and how the healthcare premium tax credit is calculated; and I end up owing $251 more in taxes to the Feds + $41 more to the state.  So the additional tax liability exceeds the additional income, which just doesn't make sense!

This isn't additional income, it's a reduction in the healthcare premiums I paid -- and as I'm finding out there's a big difference.

You said I should claim the recovery the same way I claimed the expense.  The only way I can see to do that is to alter the data entered in Form 1095-A, for example reduce the premium paid by $242 for the month when I received the rebate.  I **think** that ripples through the return correctly, and I end up owing an additional $43 Federal and $8 State.  But I'm not at all sure if this is the correct way to account for this, and altering the 1095-A values from what the state marketplace sent me feels wrong -- in fact it feels like a great way to invite an IRS audit. 

What is the correct way to handle this?  What am I missing here?

[Mike9241]

if it all depends on whether you took a deduction on your tax return for the net premiums paid before the  yhis rebate. 

if no deduction it is not taxable

if you took a schedule a tax deduction for the net premiums then it's miscellaneous income reported on schedule 1 line 8z in the year received

couldn't find anything specific on this but to me it seems appropriate if you took a self-employed health insurance deduction this should be treated as a reduction of this expense in the year received 

see this link Q15

https://www.irs.gov/newsroom/medical-loss-ratio-mlr-faqs#:~:text=For%20a%20cash%20rebate%20paid,more... 

[Opus 17]

I tend to agree that you simply reduce your premium (if you are reporting the premium as a business expense on schedule C).  For example, if your 2024 premium was $1000 and you received a $100 rebate that was paid in 2024 (even for a prior year), you would report the net premium for 2024 of $900.  

If you do report the full premium deduction of $1000 and misc business income of $100 (or $242 in your case), and that causes an oversized adjustment, that is because the premium tax credit was not well designed and there is no gradual phase out when your income gets close to the threshold.  Instead, you would need to look for some extra business expenses to lower your income...make sure you didn't forget everything and make sure to take every expense possible.  But reporting the net premium rather than income may have a less drastic effect.  

[AmeliesUncle · Accepted solution]

First, are you SURE you originally deducted it on Schedule C?  If it was your own insurance, it should NOT have been on Schedule C.  It would have ended up as the Self-Employed Health Insurance Deduction on Schedule 1.  In TurboTax, that is done automatically when you enter the 1095-A and then say it was part of your business.

Assuming you filed the original correctly and claimed the deduction on Schedule 1, then the 'added back' amount should be on Schedule 1, not Schedule C.

But that may still result in the same problem.  While there are several possibly reasons why you are encountering that result, I suspect it is this:  The original IRS guidance gives three options to calculate things.  The first and most optimal one sometimes doesn't work out right, so they give an "alternative" calculation.  Sometimes that "alternative" calculation gives really weird results like what you are seeing.   The third option is "another method that produces amounts that satisfy applicable tax law".  TurboTax does not do anything for that option, but that is the option that likely would work best for you.  It could require some gruesome manual calculations though.

If that is what is causing it, a possible work-around is to contribute to an employer retirement account, such as a SEP.  While you could contribute more, hypothetically contributing $242 to your SEP would exactly offset the added $242 (assuming you correctly add it to Schedule 1, rather than Schedule C).

[kac42]

Thank you all for the replies.

AmeliesUncle, I think you nailed it.  The data entered on 1095-A ripples through to several places, including Schedule 1, Part II Adjustments to Income / Line 17 Self-Employed Health Insurance Deduction (vs. a deduction on Schedule C).   So adding the premium rebate onto Schedule 1 definitely feels correct, specifically Part 1 Additional Income / Line 8z Other Income.  The end result is the same as two other fudges I experimented with, I only owe $43 more federal / $8 more state.  But this method is much more straightforward and defensible.

Again, thanks!