IRS Publication 26 CFR 601.105 describes a situation with self-employed individuals who also are insured through the ACA marketplace, where there is circular logic in calculating AGI for determining subsidy qualification, and therefore net cost of health insurance. It is an issue that was identified back in 2014.
In a nutshell, the circular logic is: Health insurance premium subsidies are dependent on AGI, but a self-employed individual's AGI is dependent on health insurance premiums (which are net of subsidies). Oops!!!
26 CFR 601.105 goes on to describe two iterative methods of resolving this circular-logic issue. However, an article I read from late 2018 suggested that most tax software should have the calculations built in, making it an issue that should not be problematic.
Question: Is this something that TurboTax handles automatically? If so, where and how do we see this? And, what all versions of TT will provide this feature?
<a rel="nofollow" target="_blank" href="https://www.healthinsurance.org/faqs/my-premium-subsidy-is-dependent-on-my-agi-but-im-self-employed-...>
That paragraph begins, "In July 2014, the IRS released 26 CFR 601.105, in which they acknowledged the circular relationship between self-employed health insurance premium deductions, AGI, and premium tax credits..."
Then I searched the Internet for "26 CFR 601.105" to read about it, and I found this:
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-drop/rp-14-41.pdf">https://www.irs.gov/pub/irs-drop/rp-14-41.pdf</a>
But you are right, I now see that Revenue Procedure 2014-41 is the proper reference, even though at the top of the page of the PDF it says "26 CFR 601.105". Thanks for the corrective info.
One follow-up question: What all versions of TT cover this? I have been using TT Deluxe.
ALL of the downloaded version can handle ALL tax forms and situations.
If you are new to being self employed and acting as your own bookkeeper and tax preparer
you need to get educated ....
If you have net self employment income of $400 or more you have
to file a schedule C in your personal 1040 return for self employment business income. You may get a 1099-Misc for some of your income but you need to
report all your income. So you need to keep your own good records. Here is some reading material……
IRS information on Self Employment….
Publication 334, Tax Guide for Small Business
Publication 535 Business Expenses
Home Office Expenses … Business Use of the Home
There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Home & Business return and will help you keep up in your bookkeeping all year along with calculating the estimated payments needed ....
Self Employment tax (Scheduled SE) is generated if a person has $400 or more of net profit from self-employment on Schedule C. You pay 15.3% for 2017 SE tax on 92.35% of your Net Profit greater than $400. The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare. So you get social security credit for it when you retire. You do get to take off the 50% ER portion of the SE tax as an adjustment on line 27 of the 1040. The SE tax is already included in your tax due or reduced your refund. It is on the 1040 line 57. The SE tax is in addition to your regular income tax on the net profit.
For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% for 2017 SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.
You must make quarterly estimated tax payments for the current tax year (or next year) if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
- 2. You expect your withholding and credits to be less than the smaller of:
90% of the tax to be shown on your current year’s tax return, or
100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)
To prepare estimates for next year, You can just type W4 in the
search box at the top of your return , click on Find. Then Click on Jump To and
it will take you to the estimated tax payments section. Say no to changing your
W-4 and the next screen will start the estimated taxes section.
OR Go to….
Federal Taxes or Personal (H&B version)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button