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Self-Employed Health Insurance Deduction & Premium Tax Credit (Pub 974)


G2R
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Resurrecting this beast as I'm really trying hard to do this RIGHT, and it genuinely feels impossible using the 974 as a guide.  I'd honestly LOVE to see an IRS auditor explain this whole thing.  I'd bet many can't.  Regardless I've got a CRAZY method and I'm hoping one of you can logically talk me out of it.  

I'm using ATX.  I've already completed the SE Health Ins. worksheet, Worksheet W & Worksheet X and form 8962.  The only thing blank on W is the very bottom where it asks for the simplified or iterative method results. image.thumb.png.de158d5b8f5680339a032b39fc8af85c.png

THEN, I took total premiums listed on 1095A (ie $16k) minus premium tax credit listed on 8962, line 24 ($13k) = $3k.  So I then reduce my SE Health insurance deduction by $3k.  Let's assume I was deducting $7k in premiums originally, so now it only says $4k.  I go back to 8962, see what the newly calculated premium tax credit says and continue to adjust the SE Health insurance number up and/or down until I get a summation of SE Health insurance and Premium tax credit that's most closely totals the total premiums.  

Is this crazy?  Is this in effect the Iterative calculation?

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Your software probably does the math for you, for at least one of the two methods; you might need to specify which method. Your software might produce a worksheet "showing its work," as they required of us in math classes. The first method is to continue the iterations until no more than a dollar apart. The second is to stop at three (?) iterations. It's a pain to proofread and a huge pain to explain to clients. Charge enough for this!

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On 9/2/2019 at 11:35 AM, GGRNY said:

Is this in effect the Iterative calculation

Yes, that's how I do it.

2 or 3 times, I've had the catch-22 where deducting SEHI qualifies you for a PTC, but then the PTC lowers the SEHI so much that it disqualifies you for the PTC. I just split the difference and call it a day. Never gotten any IRS notices over this.

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3 hours ago, Abby Normal said:

Yes, that's how I do it.

2 or 3 times, I've had the catch-22 where deducting SEHI qualifies you for a PTC, but then the PTC lowers the SEHI so much that it disqualifies you for the PTC. I just split the difference and call it a day. Never gotten any IRS notices over this.

You honestly, genuinely and sincerely just made my day :)

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ATX does NOT do the math for us.  I struggle with this each year on a couple clients.

On ‎09‎/‎02‎/‎2019 at 10:59 AM, Lion EA said:

Your software probably does the math for you, for at least one of the two methods; you might need to specify which method. Your software might produce a worksheet "showing its work," as they required of us in math classes. The first method is to continue the iterations until no more than a dollar apart. The second is to stop at three (?) iterations. It's a pain to proofread and a huge pain to explain to clients. Charge enough for this!

 

On ‎09‎/‎02‎/‎2019 at 10:59 AM, Lion EA said:

Your software probably does the math for you, for at least one of the two methods; you might need to specify which method. Your software might produce a worksheet "showing its work," as they required of us in math classes. The first method is to continue the iterations until no more than a dollar apart. The second is to stop at three (?) iterations. It's a pain to proofread and a huge pain to explain to clients. Charge enough for this!

 

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49 minutes ago, Lion EA said:

My time is worth money. I'm glad I pay more and get more. I have only a couple clients that would have both SEHI and Premium Tax Credit, so I'd never pick up speed at that calculation.

This isn't about getting more bang for your buck because you have higher end software.  Drake is certainly more affordable than either ATX or ProSystem, and it generally does the calculation too, but this is a recognized problem for software in this specific situation.  Abby Normal's post above perfectly describes what happens sometimes when applying the iterative calculation where he said it's "the catch-22 where deducting SEHI qualifies you for a PTC, but then the PTC lowers the SEHI so much that it disqualifies you for the PTC."

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That's why you can use the alternate method that lets you stop at three (?) iterations if you're not getting closer. Or continue with the iterations until within a dollar and then stop. Or, depending on your software, tell it which method to use if you don't like its default. If Drake does the calculation for you, that's wonderful. If ATX does not, then complain to ATX. If I had a lot of those cases, I wouldn't have the time or be able to charge enough for my time. With just one or two and not even every year, I would have to relearn each time, spend time looking it up. Someplace in the middle might be cost effective for me to do the calculations myself. However, I don't have the type of clientele that qualifies for Premium Tax Credits very often. If I did and if I used ATX, I would be writing to them about now!

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Nope. Very frustrating. How does Congress &/or the IRS expect taxpayers to handle this themselves?! Confirm how many times you have to circle back before you're allowed to stop; it's something like 3. Then, just do that and stop. You'll know when you're stuck in that kind of loop, because you won't be getting closer each step, you'll be bouncing back and forth. So do the required number of loops and then stop and sleep well at night. 

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  • 6 months later...

So I got tired of trying to remember all the steps to take doing this and finally took the time to document it all.  I hope this helps save someone else a lot of time and aggravation going forward.  If there's spelling, grammar issues, I apologize.  When I created this, I didn't intend to publish.  

 

Reconciliting Self-employed health insurance and premium tax credit.pdf

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I do something kind of similar but less work and no math, but I've had 3 returns where it was an infinite loop because the taxpayer was very close to the 400% limit and bounces back and forth between no PTC and some PTC. I usually just take enough SEHI to get them right below 400%, and call it a day.

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