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GLJEANNE

Self-employed paying back APTC

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Usually it's just a pain to balance out the SE Health Insurance and the payback/additional Premium Tax Credit.   But I've got one that can't.  Is it possible that at some AGI level, or level of payback, the taxpayer would have to pay back 100% of his Advanced PTC, but not be able to claim any part of that as a SEHI deduction?  I'm not sure if I just haven't run into this before, or I'm too brain dead to remember.  His income went up a lot during the year, and obviously he never informed the marketplace.

The total premium was $7625, of which taxpayer paid $2705, and got APTC of $4920.  At those figures, it all has to be paid back.  But of course, if I enter SEHI of $7625, then none of it has to be paid back.  Worksheets W and X are showing he only claims the $2705, and I'm just not trusting my brain any more.

I am so ready to put everyone on extension. 

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It sounds impossible.  How much he made? Filing Status? Give the figures of what he paid and what the gov pay and we might be able to tell you.

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taxable pension 20,300,  Schedule C 34534

1/2  SSA 2440, premiums he actually paid 2705

AGI 46,689. 

I thought it sounds impossible too, but damned if I can see a way around it.

 

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If this might clear up things, I had a client last (2017 tax return) year who applied and told the exchange he was going to make $55K and a family of 4 etc...  In July his wife went back to the workforce and he called and canceled the insurance because they were going to be covered by the wife health insurance, total income was around 80K.  Guess what, they had to back 100% of the credit because they exceeded the $55K.

TP took the time to call the exchange and they confirmed it.

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Yeah, it's not unusual to have to pay back.  The issue is that if you're self-employed, you normally can add the payback as SE Health Ins paid on Form 1040.  In this case, it doesn't appear to be allowed, and I'm not sure why, or if it's correct.

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Publication 974
Left Arrow Previous Page | Table of Contents | Index | Next Page Right Arrow

Self-Employed Health Insurance Deduction and PTC(p56)

rule
This part provides special instructions for figuring the self-employed health insurance deduction and PTC if you or your spouse was self-employed, you or a member of your tax family was enrolled in a qualified health plan in 2018, and you may be eligible for the PTC. Because the amount of the self-employed health insurance deduction may affect the amount of the PTC, and the amount of the PTC may affect the amount of the deduction, a taxpayer who may be eligible for both may have difficulty determining the amounts of those items. A taxpayer who may be eligible for both may follow the instructions in this part to determine amounts of the self-employed health insurance deduction and PTC that are allowable under the law.
EIC
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.
Before you complete any of the worksheets in this part, you should first do the following.
  • Read the instructions for line 29 of Schedule 1 (Form 1040) or Form 1040NR to find out if you meet the requirements for claiming the self-employed health insurance deduction.
  • Read the Instructions for Form 8962 to find out if you meet the requirements for claiming the PTC except for the requirement that your household income be at least 100% but not more than 400% of the federal poverty line for your family size for 2018. You will determine whether you meet the 100% but no more than 400% requirement in the process of completing these instructions.
If you meet the requirements described above, do the following.
  • If you are filing Schedule 1 (Form 1040), complete lines 30 (Penalty on early withdrawal of savings) and 31a (Alimony paid). Also, figure any write-in adjustments you will enter on the dotted line next to line 36, other than any amounts identified as "DPAD."
  • If you are filing Form 1040NR, complete lines 30 (Penalty on early withdrawal of savings) and 31 (Scholarship and fellowship grants excluded). Also, figure any write-in adjustments you will enter on the dotted line next to line 34, other than any amounts identified as "DPAD."
  • Complete line 32 of Schedule 1 (Form 1040), or Form 1040NR if you made contributions to a traditional IRA and you (and your spouse if filing a joint return) were notcovered by a retirement plan at work or through self-employment.
  • If you elect to report your child’s interest and dividends on your tax return, complete Form 8814.
  • If, during 2018, you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA recipient, reemployment TAA recipient, or Pension Benefit Guaranty Corporation payee, read the Instructions for Form 8885 to find out if you meet the requirements for electing the health coverage tax credit (HCTC). If you elect the HCTC, complete Form 8885.
Using this information, do the following.
  1. If you have health insurance premiums for which you cannot claim the PTC (see Nonspecified premiums, later), first complete Worksheet P, or if required, Worksheet 6-A in chapter 6 of Pub. 535 but only with respect to those premiums. Skip Worksheets W and X if either of the following applies.
    1. You completed Worksheet P and line 2 is less than or equal to line 1.
    2. You completed Worksheet 6-A in chapter 6 of Pub. 535 and line 13 is equal to or less than line 3.
  2. Then complete Worksheet W and Worksheet X. You have to complete Worksheet X only if APTC was paid to your insurer on your behalf for the months you were self-employed. If APTC was not paid to your insurer on your behalf for the months you were self-employed, skip Worksheet X.
  3. After completing Worksheets W and X, you may choose to use either the Simplified Calculation Method or theIterative Calculation Method to compute your self-employed health insurance deduction and PTC. The Simplified Calculation Method is shorter, but in some cases will not produce a result as favorable as the Iterative Calculation Method.
PencilWorksheet P. Self-Employed Health Insurance Deduction for Nonspecified Premiums
Before you begin: ✓ If you file Form 8885, read the definition of nonspecified premiums to find out which amounts you cannotinclude on line 1 of this worksheet. 
✓ Read Exceptions, later, to see if you can use this worksheet instead of Pub.535 to figure your deduction for nonspecified premiums. Also read the definitions of specified premiums andnonspecified premiums.
1.   Enter the total amount of nonspecified premiums paid in 2018 for health insurance coverage established under your business (or the S corporation in which you were a more-than-2% shareholder) for 2018 for you, your spouse, and your dependents. Your insurance also can cover your child who was under age 27 at the end of 2018, even if the child was not your dependent. But do not include amounts for any month you were eligible to participate in an employer-sponsored health plan or amounts paid from retirement plan distributions that were nontaxable because you are a retired public safety officer 1.    
2.   Enter your net profit* and any other earned income** from the business under which the insurance plan is established, minus any deductions on lines 27 and 28 of Schedule 1 (Form 1040), or Form 1040NR. Do not include Conservation Reserve Program payments exempt from self-employment tax 2.    
3.   Self-employed health insurance deduction for nonspecified premiums.Enter the smaller of line 1 or line 2. Do notinclude this amount in figuring any medical expense deduction on Schedule A (Form 1040) 3.    
   
  • If line 2 is equal to or less than line 1, stop here. Do not read the rest of these special instructions. Enter this amount on line 29 of Schedule 1 (Form 1040) or Form 1040NR. Use Form 8962 to figure the premium tax credit for specified premiums.
  • If line 2 is more than line 1, complete Worksheet W. Also complete Worksheet X if APTC was paid to your insurer on your behalf for the months you were self-employed. If APTC was not paid to your insurer on your behalf for the months you were self-employed, skip Worksheet X.
     


*If you used either optional method to figure your net earnings from self-employment, do not enter your net profit. Instead, enter the amount from Schedule SE, Section B, line 4b. 

**Earned income includes net earnings and gains from the sale, transfer, or licensing of property you created. However, it does not include capital gain income. If you were a more-than-2% shareholder in the S corporation under which the insurance plan is established, earned income is your Medicare wages (box 5 of Form W-2) from that corporation.

Instructions for Worksheet P(p57)

rule
Use Worksheet P to figure the amount you can deduct for nonspecified premiums.

Exceptions.(p57)

rule
 
Use Worksheet 6-A in chapter 6 of Pub. 535 instead of Worksheet P to figure your deduction for nonspecified premiums if any of the following applies. (Only include nonspecified premiums on line 1 or 2 of Worksheet 6-A.)
  • You had more than one source of income subject to self-employment tax.
  • You file Form 2555 or 2555-EZ.
  • You are using amounts paid for qualified long-term care insurance to figure the deduction.
After you complete Worksheet 6-A, follow the instructions below.
  • If line 13 is equal to or less than line 3, stop here. Do not read the rest of these special instructions. Enter the amount from line 14 of Worksheet 6-A on line 29 of Schedule 1 (Form 1040) or Form 1040NR. Use Form 8962 to figure the premium tax credit for specified premiums.
  • If line 13 is more than line 3, complete Worksheet W. Also complete Worksheet X if APTC was paid to your insurer on your behalf for the months you were self-employed. If APTC was not paid to your insurer on your behalf for the months you were self-employed, skipWorksheet X.

Nonspecified Premiums(p57)

rule
A nonspecified premium is either of the following.
  • A premium for health insurance coverage established under your business (or the S corporation in which you were a more-than-2% shareholder) but paid for coverage in a plan that is not a qualified health plan.
  • The portion of the premium for coverage in a plan that is a qualified health plan established under your business (or the S corporation in which you were a more-than-2% shareholder) but that is attributable to individuals not in your coverage family.
Calculate how much of these nonspecified premiums are fully deductible by entering this amount on line 1 of Worksheet P, or if required, on line 1 or 2 of Worksheet 6-A in chapter 6 of Pub. 535. Complete the remainder of the appropriate worksheet.
The following are examples of nonspecified premiums.
  • Premiums paid for a qualified health plan other than during a coverage month.
  • Premiums paid to cover an individual other than you, your spouse, or your dependents.
  • Premiums for qualified long-term care insurance.
  • Dental insurance premiums.
  • Medicare premiums you voluntarily paid to obtain insurance in your name that is similar to qualifying health insurance.

Example.(p58)

In 2018, you were self-employed and were enrolled in a qualified health plan through the Marketplace. You enrolled your dependent, 22-year-old daughter in individual market coverage not offered through the Marketplace. This coverage has an annual premium of $3,000. This $3,000 premium is a nonspecified premium because it is for coverage under a plan that is not a qualified health plan. Include this $3,000 premium on Worksheet P, line 1, or if required, on line 1 of Worksheet 6-A in chapter 6 of Pub. 535.

Filers of Form 8885.(p58)

rule
 
If you are filing Form 8885, nonspecified premiums do notinclude any of the following amounts.
  • Any amounts you included on Form 8885, line 4, or on Form 14095 (the Health Coverage Tax Credit Reimbursement Request form).
  • Any qualified health insurance coverage premiums you paid for HCTC eligible coverage months for which you received the benefit of the HCTC advance monthly payment program.
  • Any advance monthly payments of the HCTC your health plan administrator received from the IRS, as shown on Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments.

Specified Premiums(p58)

rule
Specified premiums are the premiums for a specified qualified health plan or plans for which you may otherwise claim as a self-employed health insurance deduction on line 29 of Schedule 1 (Form 1040) or Form 1040NR. Generally, these are the premiums paid for the months you were self-employed. If you were self-employed for part of a month, the entire premium for that month is a specified premium. A specified qualified health plan is a qualified health plan that covers one or more members of your coverage family for a month for which your enrollment premium(s) has been paid by the due date prescribed under Enrollment premiums, discussed earlier. Qualified health plan, coverage family, and enrollment premiums are defined earlier under Terms You May Need To Know.

Example.(p58)

You were enrolled in a qualified health plan through the Marketplace for all of 2018 and you were self-employed from September 15 through December 31. Only the premiums for the last 4 months are specified premiums and only those premiums are entered on Worksheet W, line 1, and Worksheet X, line 27, if you are required to complete those worksheets. You are not allowed a self-employed health insurance deduction for the January through August premiums because you were not self-employed during those months. Those premiums are neither specified premiums nor nonspecified premiums. However, you may be allowed a PTC for your coverage for January through August.
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Yes, I've been through all that repeatedly.  The question is to see if others have come across the same situation, which seems very odd.

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I would show total premium on line 29 and payback zero.  Sounds crazy but give your client the benefit of the doubt and let him decide. Explain to the client and document in writing how he wishes to proceed and consequences if IRS disagrees.

As I understand the situation, the instant he claims the excess PTC he is in effect not liable for it since he can then claim the repayment as a deduction.

If he pays back the PTC and does not claim it on line 29, then he is overstating his income by an allowable deduction.

It  seems like catch a 21 situation, but if the client wants to go that route I would fight for him.

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Go through the iteration; at some point the credit allows/disallows the credit.  If it's still a close call, see if he has extra $$ to put into an IRA.

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The recapture of the credit produced a tax deduction.  The deduction eliminates the recapture.  What am I missing?

  • Haha 1

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I had one also just like that.  My client put money into an IRA and everything worked out.  I worked on those worksheets for hours and couldn't get it to work.

Maybe I was tired also but lucky they could do IRA and solve the problem.

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Danrvan, if we do that, he'd be claiming premiums he didn't pay or pay back through by taxes.  

Joan and Grandmabee, that's a good suggestion, probably what we'll try.

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I've only had two of these ever. I usually just claim enough SEHI so they don't have to pay back the APTC. I've yet to find examples for this Catch-22.

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