Self employed health insurance deduction on Schedule C for Marketplace Insurance

[EmsBTW2016]

I have a new client who has had marketplace insurance in the past and now this year. This is my first client who has had this type of insurance. 

Last year the prior CPA did not deduct any amount for self employed health insurance related to the premiums paid for marketplace insurance. The Schedule C business had a profit that exceeded the premiums paid. 

This year, the software is calculating a 3k credit for self employed health insurance. It seems this is correct but why wouldn't it have been taken into account by the prior CPA? 

Am I correct to take the self employed health insurance deduction if it is related to this marketplace insurance? 

Other details:

Client is married this year so only had the marketplace insurance until august. The American recovery plan has prevented the client from having to make a big repayment of the premiums. Not sure if any of that is relevant. 

[qbteachmt · Accepted solution]

The ARPA provision is for waiving repayment of the Advanced Premium that would have been paid on behalf of your client. Not "the premium" but any supplemental amount paid on their behalf. That's part of the "affordability" part of the ACA = Affordable Care Act.

The 1095-A would be linked to the Sched C, along with any other premiums the taxpayer incurs for their new policy, to show it is allowed as deduction against the gross income of that business.

Then, if they fall below the 401% limit, they get to deduct the additional amount on the 1040 = Form 8962.

"It seems this is correct but why wouldn't it have been taken into account by the prior CPA?"

Not everyone knows what they are supposed to be doing. You might recommend amending the prior year(s).

[EmsBTW2016]

Thank you for clarifying!

So let me make sure I understand:

Regarding Self Employed Health insurance Deduction:

The 1095-A is linked to Sch C, showing the premiums paid for health insurance (these are the amounts from Part II Column A) which can be deducted against income as a Self Employed Health Insurance Deduction regardless of if they are below the 401% limit. If I understand correctly then I agree this should have been done in the prior year like you said. 

Regarding the Premium Tax Credit:

If they are below the 401%, then they get a credit equal to the amount of the total premium tax credit less the advance payments of the premium tax credit - this amount goes on 1040 as a credit. 

In my clients case, since client got married this year the increase in income means they are NOT under the 401%. Since they are not under the 401%, they would have normally had to pay back the advanced premium that exceeded the premium tax credit. Because of the ARPA provision, they do not have to repay this amount. 

Am I on the right track? Thanks so much for your help. 

[qbteachmt]

If Column B of the 1095-A doesn't have values, you can get that info from the marketplace. I would expect your client has Columns B and C filled in, though.

Depending on how close to the 401% they are, you can see if making a deductible IRA would make a difference, if that is allowed for them. If they have an HSA plan, that contribution's deduction also helps.

[EmsBTW2016]

The 1095A has info in Column A, B and C. The system is pulling the totals from column A as the amount for Self Employed Health Insurance deduction. I have entered the info exactly as it is on the 1095A. 

They are actually getting a large refund (4-5k) due to the fact that the repayment of the PTC is waived PLUS the fact that since they were married mid year, when the first and second round of stimulus checks went out, the taxpayer was not eligible for stimulus checks based on his 2019 return because his income was over the limit as a single filer. Now that taxpayer is married, their combined income is under the limit for joint filers. This means they get a recovery rebate credit also. 

The spouse is the one who had the marketplace insurance until they got married. 

Income as joint filers is over 100k but under 150K so they are about 6 times the federal poverty line. 

[EmsBTW2016]

Update:

I think I am understanding what happened in the prior year now. The client qualified for the premium tax credit in the prior year, so they could not double dip and take both the PTC and the SE health insurance deduction.

This year, they do not qualify for the PTC so they are allowed the SE Health insurance deduction. I talked to my client and they told me they paid less than what was in column A, so I used the amount they actually PAID as the amount for SE health Insurance deduction - I had to override in the software. 

[qbteachmt]

"The client qualified for the premium tax credit in the prior year,"

The spouse? Qualifying for the PTC is not the same as applying to get in as Advance. One reduces your cost and is based on your projection; the other is a refundable credit on the taxes, that your MAGI has to qualify for as under 401% poverty level, and that is something you might do because you have no expectation that you would qualify for APTC.

"so they could not double dip and take both the PTC and the SE health insurance deduction."

Yes you can. But the SE deduction is based on the amount you paid and up to the reportable income from that Sched C activity (not taking SE tax into consideration). Any difference, if you qualify, is right on the 1040. And they do impact each other, but one does not exclude the other. That's because of the way the MAGI is affected.

"This year, they do not qualify for the PTC so they are allowed the SE Health insurance deduction."

They are not linked like that. Your business income entitles you to include health as the deduction, up to the point you've offset the income. The PTC is a refundable credit. Any unused premium costs would go on Schedule A and be subject to the floor. These are all different provisions.

"I talked to my client and they told me they paid less than what was in column A, so I used the amount they actually PAID as the amount for SE health Insurance deduction - I had to override in the software."

Try this article:

https://proconnect.intuit.com/community/review-taxes/help/calculation-of-se-health-insurance-deducti...

[EmsBTW2016]

Thank you so much for all of the information.

Have I done something wrong by using the amount paid in premiums as the SE health insurance deduction instead of using the amount on 1095A column A? The amount actually paid was lower than the amount in column A of 1095 A. See item #4 below for more info. 

I am sorry if I wasn't clear on some details:

1. The spouse received the Premium Tax Credit in the prior year on their 2019 tax return. This was before they were married, so the spouse filed as a single taxpayer. The premium tax credit of about 5k exceeded their advanced payment of the premium tax credit of about 3k. This resulted in a premium tax credit of 2k in 2019.

2. Their prior CPA told them they were not allowed to take the Self Employed Health Insurance deduction (not sure of the prior CPA reasoning - I asked if they said why and the spouse/client did not know). I was trying to rationalize why - I thought it might be related to the fact they received the PTC in 2019 but based on your explanation that's not the case. It doesn't really matter why they did it I suppose. Sounds like it was still incorrect. 

3. For the current year 2020 tax return: The spouse is now married to the taxpayer who is a normal w2 employee. Their combined income is too high for them to receive the premium tax credit. So this year they do not have the premium tax credit.

4. This year I believe they can take the SE health insurance deduction for the full amount paid. They did not have a premium tax credit. Their business income outweighed the SE health insurance premiums paid. For the SE Health insurance deduction, I used the amount actually paid which was less than what was reported in column A on 1095A. Is there any issue here with not using what is on 1095A column A (I would think it would be more conservative to use the amount actually paid if it is less than what is reported on 1095A)?

I do not think the article linked relates to the current year situation unless I am missing something?