Calculation of SE Health Insurance Deduction when claiming the Premium Tax Credit on Form 8962

How does ProSeries calculate the Form 8962, Form 1040, and the Self-Employed Health and Long-Term Care Insurance Deduction Worksheet in conjunction with the Self-Employed health insurance deduction and the Affordable Care Act?

For tax years 2023-2025:

Taxpayers with a household income that exceeds 400% of the federal poverty line for their family size may be allowed a PTC. For more information, click here.

Resources before you start:

• Form 8962 instructions
• IRS Pub 974
• Rev. Proc. 2014-41

Preparation Work

There are two methods of calculating the Self-Employed Health Insurance deduction, the Simplified Calculation Method and the Iterative Calculation Method.

If Form 8962 is generating with a Premium Tax Credit and you have a SE health insurance deduction on 1040, line 29, then your deduction and credit may be adjusted.  This adjustment is based on the calculations described in Revenue Procedure 2014-41 and IRS Pub. 974 (beginning on page 50).

If you meet the requirements described above, do the following:

1. Print a blank copy of Form 1040 or Form 1040NR.  For 1040 filers, compete lines 7-22.  For 1040NR filers, complete lines 8-23.
2. If you are filing Form 1040, complete lines 30 and 31a.  Also figure any write-in adjustments you will enter on the dotted line next to line 36.
3. If you are filing Form 1040NR, complete lines 30 and 31.  Also figure any write-in adjustments next to line 35.
4. Complete line 32 of Form 1040 or Form 1040NR if you made contributions to a traditional IRA and you (and your spouse, if filing a joint return) were not covered by a retirement plan at work or through self-employment.
5. If you elect to report your child's interest and dividends on your tax return, complete Form 8814.
6. For tax year 2021: If you elect both the the Health Coverage Tax Credit on Form 8885 and the Premium Tax Credit for any month, do the following:
   1. See Line 9 in the Form 8962 instructions to determine if you need to allocate policy amounts (enrollment premiums, SLCSP, and/or APTC) on a Form 1095-A between your tax family and another tax family.  If you need to allocate policy amounts, complete Form 8962, Part IV, according to the instructions.
   2. Complete Form 8885.

Using this information, do the following:

1. If you have health insurance insurance premiums for which you cannot claim the PTC (see Nonspecified premiums in IRS Pub. 974), first complete Worksheet P, or if required, Worksheet 6-A in chapter 6 of Publication 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 IRS Pub. 535 and line 13 is equal to or less than line 3.
2. Then complete Worksheet W and Worksheet X in IRS Pub. 974.  You have to complete Worksheet W only if advance payments of the premium tax credit (APTC) were made to your insurer on your behalf for the months you were self-employed and the APTC was paid for a plan for which you are not also electing the HCTC.  If the APTC was not paid to your insurer on your behalf for the months you were self-employed, or APTC was paid only for a plan for which you are electing the HCTC, skip Worksheet W.
3. After completing Worksheets W and X in IRS Pub. 974, use the Simplified Calculation Method to compute your self-employed health insurance deduction and PTC.

The Simplified Calculation Method

Step 1:  Figure your adjusted gross income (AGI), modified AGI, and household income using the total of Worksheet X, line 15 as your self-employed health insurance deduction on line 29 of the printed copy of Form 1040 or Form 1040NR.  Use Worksheets 1-1 and 1-2 in the Form 8962 instructions to figure modified AGI and household income.

Important!  If you are claiming any of the following deductions or exclusions, see Special Instructions for Self-Employed Individuals Who Claim Certain Deductions/Exclusions in Pub. 974 before you complete Step 1:

1. Passive activity losses from rental real estate activities and lines 1d and 4 of Form 8582 are losses.
2. IRA deduction and you (or your spouse if filing a joint return) were covered by a retirement plan at work or through self-employment.
3. Exclusion of interest from series EE and I U.S. savings bonds issued after 1989.
4. Student loan interest deduction.
5. Tuition and fees deduction.

Step 2:  Print a blank copy of Form 8962.  Figure the total PTC on Form 8962 using the AGI, modified AGI, and household income you determined in Step 1.  Enter the modified AGI and household income from Step 1 on Form 8962.  When figuring the PTC, use all enrollment premiums for qualified health plans in which you or any individual in your tax family enrolled.  Complete this Form 8962 only through Line 24.  Do not attach this Form 8962 to your tax return.

Note!  If you are not eligible to take the PTC, stop here.  Do not use this method.  Instead, figure you self-employed health insurance deduction using the Self-Employed Health Insurance Deduction Worksheet in the Form 1040 or Form 1040NR instructions or, if required, Worksheet 6-A in chapter 6 of Pub. 535.  If you are following the instructions under Special Instructions for Self-Employed Individuals Who Claim Certain Deductions/Exclusions, make this determination when you complete the final iteration of Step 2.  Refigure the deductions/exclusions if you are not eligible for the PTC.

Step 3:  Figure your self-employed health insurance deduction by completing the following worksheet.

Step 3 Worksheet:

1. Enter the amount from Worksheet W, line 5.  If you did not complete Worksheet W, enter the amount from Worksheet X, line 1.
   • Caution:  If the amounts on lines 12-23 column (e), of your Step 2 Form 8962 are not the same for each month and you had specified premiums for less than 12 months, skip lines 2-5 below and enter on line 6 the total of those column (e) amounts for the months you paid specified premiums.
2. Enter the total PTC (Form 8962, line 24) you figured in Step 2, earlier.
3. Enter the number of months in 2015 for which specified premiums were paid.
   • Self-employment for part of a month counts as a full month of self-employment.
4. Enter the number of months someone in your coverage family was enrolled in the qualified health plan.
5. Divide line 3 by line 4.
6. Multiply line 5 by line 2.
7. Subtract line 6 from line 1.
8. Enter the amount from Worksheet X, line 14.
9. Enter the smaller of 7 or line 8.
10. Enter the amount from Worksheet X, line 12.
11. Add lines 9 and 10.  Use this amount as your self-employed health insurance deductions in Step 4 next.  Also enter this amount on line 29 on Form 1040 or Form 1040NR.

Step 4:  Refigure the final PTC on another Form 8962.  Complete this Form 8962 through Line 29.  Attach this Form 8962 to your tax return.  When refiguring the PTC, use all enrollment premiums for qualified health plans in which you or any individual in your tax family enrolled.  Determine AGI, modified AGI, and household income using the amount from line 11 of the Step 3 Worksheet as your self-employed health insurance deduction.  Use Worksheets 1-1 and 1-2 in the Form 8962 instructions to figure modified AGI and household income.

Note: 
Due to the complexity of this calculation you may need to review the tax scenario of your client to see if a manual adjustment is needed. There is an area of this calculation that ProSeries does not support. The following information can be found in the Unsupported Calculations portion of Final Review.

Claiming the Self-Employed Health Insurance Deduction with the Premium Tax Credit: When both the self-employed health insurance deduction and the premium tax credit are involved in a return there situations where the circular calculation that this involves does not converge to amount that is within $1. See IRS publication 974, the Self-Employed Health Insurance Deduction and Premium Tax Credit section for more details. When this is the case the tax return can alternate between two significantly different states. This commonly occurs where the self-employed health insurance deduction causes the federal poverty level to be under 400% but then the Premium Tax Credit provided reduces the self-employed health insurance deduction, then the federal poverty level goes over 400% and no Premium Tax Credit is available. In this case you should refer to IRS publication 974, the Self-Employed Health Insurance Deduction and Premium Tax Credit section for the calculation requirements.