Repayment of excess advance payment of the PTC

[Strongsilence-CPA]

The repayment amount is not treated by LC as SE health insurance (for purpose of the SE health insurance deduction.) Is this because it is not a medical insurance policy in the name of the business?  Is it tax policy?  Embarrassing that I am asking so late in the game, but a client wants an explanation.  This TP is over 400% of poverty level.  Thank you.

[PhoebeRoberts]

The repayment amount is fine as SE health insurance. It's a weird circular calculation (per pg 47 of Pub 974), but the last time I had it, Lacerte did the math just fine.

[Strongsilence-CPA]

Thanks @PhoebeRoberts then I am missing a check box or something.  The only amount qualifying in the LC calculation is the difference between the premium and the credit (col. C).

2 brain farts later....

ahh, the deduction is limited to the SE income right?  That is why the repayment flows to Schedule A, medical.  I think that is it.

[Strongsilence-CPA]

Pub 974 doesn't have a clear answer.  chatgpt wrote the words below.   So I'm back to my research.

Can the Repayment Be Treated as Self-Employed Health Insurance?

• No, if your client has to repay some or all of the Premium Tax Credit, the repayment amount does not count as a payment of self-employed health insurance.
• Only the amounts your client directly pays for their health insurance premiums can be considered for the Self-Employed Health Insurance Deduction.

IRS Publication 974 (Premium Tax Credit): This publication details how the Premium Tax Credit works, including repayments for those whose income exceeds 400% of the federal poverty level. The repayment of excess Premium Tax Credits, termed as an “excess advance premium tax credit repayment” (reported on Form 8962), is not considered a payment for health insurance coverage; it is simply the return of an overpaid benefit.

• IRS Instructions for Form 8962 (Premium Tax Credit): Form 8962 is used to reconcile the Premium Tax Credit with advance payments received. The instructions for this form clarify that the repayment amount is an adjustment based on income and subsidy calculations, not a premium payment. The IRS does not categorize this repayment as a health insurance expense.

• IRS Publication 535 (Business Expenses): This publication, which covers self-employed individuals and the Self-Employed Health Insurance Deduction, specifies that only amounts paid for actual health insurance premiums qualify for the deduction. It does not allow for repayments of subsidies (like the excess PTC) as qualifying health insurance premiums. The focus is on direct payments for the insurance policy itself.

• Internal Revenue Code Section 162(l): The statutory basis for the Self-Employed Health Insurance Deduction. Section 162(l) allows deductions for insurance that constitutes medical care, which is defined as the direct cost of health insurance coverage. The law does not include tax credit repayments as part of this definition.

[Strongsilence-CPA]

The TP has sufficient SE income.  If the TP has the policy, with the spouse as the covered person, would it be 1. allowed; and 2. more of a benefit?

[TaxGuyBill]

Yes, it is limited to SE income for that business.

In my opinion either business can claim the health plan, even if the 'other' spouse is the first/primary person on the policy.

[PhoebeRoberts]

ChatGPT is just really fancy auto-complete plus some plagiarism. No one should rely on it for anything.

If you give me some numbers to start with, I'm happy to poke around with a dummy return, but I'm not going to invent a scenario that might not be the one you're actually dealing with. 🙂

[Strongsilence-CPA]

thank you. I look into this idea.

[Strongsilence-CPA]

Thank you Phoebe.  I have drilled down into this return and now see that you are right.

[rbynaker]

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@PhoebeRoberts wrote:

ChatGPT is just really fancy auto-complete plus some plagiarism. No one should rely on it for anything.

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This.

My personal experience using AI for tax research (just out of curiosity) has AI batting about a 0.250.  One time (a VA state question) it gave a really detailed response with reference to code sections and publications.  I eventually found the publications on the WV tax site (oops, sorry Skynet, wrong Virginia) but the code references were just a work of fiction.

[qbteachmt]

For reference, I want to comment on this part: "Is this because it is not a medical insurance policy in the name of the business?"

It is in the name of the business, when it is in the name of the person who is the business. I like to use the word "parity." If you can have group insurance in the name of the business, but someone else is over 65 and on Medicare, it isn't "fair" that they cannot also get a policy in the name of the business. But in essence, their Medicare coverage (or marketplace coverage) does the same thing your group plan is doing, so it gets the same favored treatment. Same treatment = parity.

[nvrvwls]

I am also having trouble with this same issue.

Taxpayers are a joint couple with 2 Schedule C's. They paid ~$4K out of pocket and got Advance Premium Tax Credit of ~$11K. The full Premium Tax Credit is being repaid.

The primary taxpayer's Schedule C makes plenty of money for the deduction. The spouse's Schedule C has a loss.

Only the premiums paid out of pocket are flowing to Schedule 1 as a Sec 162(L) adjustment. The rest is flowing to Schedule A.

On the 1095-A inputs, i linked it to the primary taxpayer's Schedule C (the profitable one).

Any thoughts?

[nvrvwls]

I'm leaning toward entering the premiums repaid on the adjustments tab inputs as "Premiums not entered elsewhere". Not sure if that is right though.

Whether or not I enter the adjustment I get diagnostic #43498: "This return ran through the IRS Publication 974 iterative calculation method for the self-employed health insurance deduction/premium tax credit and failed to converge on a valid result. The program used the simplified Calculation Method instead."