Contributed by: Henry, FreeTaxUSA Agent, Tax Pro
As a self-employed individual who pays for your own health insurance, you may wonder if it’s possible to claim both the self-employed health insurance deduction and the premium tax credit (PTC). You can if you allocate your insurance premiums between the deduction and credit. Let’s look at these tax benefits and how they correlate.
Premium tax credit
If you or a member of your tax family was enrolled in a qualified health plan, you may be eligible for the PTC. This credit helps people with low or moderate income afford health insurance purchased through the federal Health Insurance Marketplace or a state-based exchange. Basically, if your health insurance costs more than what the IRS considers affordable for your income level, then you can:
- Use the advance premium tax credit (APTC) to lower your monthly premiums,
- Claim the PTC when you file your return, or
- Do a combination of both options.
Self-employed health insurance deduction
If you are self-employed and have a net profit for the year, you may be able to deduct the amount you paid for health insurance for yourself, your spouse, and your dependents, as long as the insurance plan is established under your business or your family name.
Reconciling the PTC and the self-employed health insurance deduction
While your insurance premiums may make you eligible for both the PTC and the self-employed health insurance deduction, the IRS doesn’t allow you to claim two tax benefits using the same expenses.
In IRS Publication 974, you can find various calculation methods for determining the deduction and credit amount allowable under the law. Here’s one way to avoid double counting the premiums using our software:
- Complete your return and enter your premiums both on the:
- Business Income screen. Follow this menu path: Income > Business Income (Schedule C) > Edit > Health Insurance
- and on the Premium Tax Credit screen. Follow this menu path: Deductions/Credits > Marketplace Health Insurance (1095-A) and continue to this screen below.
- Follow this menu path: Summary, scroll down to click/tap view your federal tax return, and find the amount on Form 8962, Line 24 (total premium tax credit for which you qualify).
- Subtract the amount in Step 2 from the premium amount entered in Step 1.
- Your Self-Employed Health Insurance Deduction is the smaller of:
- The amount calculated in Step 3,
- Form 8962, Line 11A (or the totals of Form 8962, Line 12A through Form 8962, Line 23A) minus Form 8962, Line 25 plus Form 8962, Line 29, or
- The self-employed earned income from the business you entered your insurance premiums on.
- Go back and change the amount from Step 4 on the Business Income screen for health insurance premiums paid. You don't need to adjust your premiums entered on the Premium Tax Credit screen.
- If your deduction in Step 4 was only limited by your self-employed earned income, then you can enter the remaining insurance premiums as an itemized deduction.
Example:
Let's say your health insurance premiums were $9,000 for the year, and you received $3,000 in advance payments of the PTC. This makes your out-of-pocket health insurance premiums $6,000 ($9,000 - $3,000).
Scenario 1: You complete Step 1 above and enter premiums of $9,000. After filling out Form 8962, you qualify for a total PTC of $5,000. To complete Step 5, go back to the Business Income screen and report $4,000 ($9,000 - $5,000) in total payments you made during 2023 for self-employed health insurance premiums.
Scenario 2: The details are the same as Scenario 1 except after filling out Form 8962, you have an excess APTC repayment of $1,000. To complete Step 5, go back to the Business Income screen and report $7,000 ($9,000 - $3,000 + $1,000) in health insurance premiums.
Scenario 3: The details are the same as Scenario 2 except your business only had net income of $5,000. To complete Step 5, go back to the Business Income screen and report $5,000 in health insurance premiums. Then you could claim the remaining $2,000 ($7,000 - $5,000) as an itemized deduction in Step 6.
