When both the self-employed health insurance deduction and the Premium Tax Credit are on a return,...

When both the self-employed health insurance deduction and the Premium Tax Credit are on a return, a circular calculation is generated. Why does this occur?
A. This would not occur a taxpayer is not allowed to claim both the self employed health insurance deduction and the Premium Tax Credit.
B. Because of the adjustment to income for the self-employed health insurance, modified AGI is affected. The Premium Tax Credit calculation is not affected by changes to modified AGI, so the PTC will remain the same.
D. because of the adjustment to income for self-employed Health insurance, AGI is affected. The Premium tax Credit calculation is not allowed.

Expert Solution

The correct answer to this question is D. Because of the adjustment to income for the self-employed health insurance AGI is affected.

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.

If at the end of the year it turns out your income was higher than you thought, you must repay the excess subsidy, and if your income was lower than you thought, you can receive a credit for the subsidy you should have received.

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 Publication 974

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

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.

ekkarill92 answered 1 year ago

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