SEHI and marketplace insurance

[FEDUKE404]

Tax return is for married couple, with both husband / wife having totally separate Schedule C businesses.

The husband now has medical insurance only via Medicare B premiums. The full (not limited) amount of those premiums has been deducted as SEHI for him.

The wife has suddenly "found" a Form 1095-A. She is under age 65 and has no other medical insurance. The calculations for Form 1095-A and Form 8962 have been performed. As a result, there is now a calculated amount of ~$1,500 on line 2 of Schedule 2.

With these facts, is there any amount that can be used for the SEHI cost of her marketplace insurance premiums? She has stated that she "paid" nothing during 2023 for the full-year marketplace insurance coverage. That fact, in and of itself, would seem to indicate there is NO 2023 SEHI for her. I just wanted to get a definitive answer if anything (calculated on the Form 1040) could be used for SEHI for the spouse.

Thanks in advance.

FE

[kathyc2]

The payback of 1,500 counts as her SEHI deduction. The amount she would have paid upfront would be 1095A Col A less C.

[Rapid Robert]

Doesn't your software handle this? Mine does. I simply indicate on the 1095-A input which Schedule C, if any, is related.

[FEDUKE404]

The payback of 1,500 counts as her SEHI deduction. The amount she would have paid upfront would be 1095A Col A less C.

Thanks, but now I am even more confused.

Although I have not seen the real Form 1095-A (don't ask!) the total numbers I have on line 33 are the SAME for column A and column C.
OTOH, viewing the Form 8962, the amount shown on line 27 / line 29 (derived from line 25 less line 24) is the number that actually transfers to Schedule 2.

All entries from Form 1095-A were entered directly on the software worksheet for that form, and the Form 8962 entries were all generated without any input on my part.

I'm still not grasping being able to take a SEHI adjustment for something for which the client expended (directly) no personal funds, but I was hoping that something would fall out from the Schedule 2 entry.

With this clarification, are you still of the mind set that the amount shown on Schedule 2, line 2 CAN be used for her SEHI (within the usual limitations for same)?

Thank you very much for your helpful comments!

FE

[kathyc2]

If A and C are the same amount, it means that she received advance credits for the full cost of insurance. Because the actual income ended up more than the amount used for the advance payments, she needs to pay back 1,500.

In Pro you link it to the Sch C toward the bottom of 1095A entry form. Other software likely has something similar.

This is a rare instance where you get to take an amount (1500) paid in 2024 as a deduction on 2023 return.

[FEDUKE404]

If A and C are the same amount, it means that she received advance credits for the full cost of insurance. Because the actual income ended up more than the amount used for the advance payments, she needs to pay back 1,500.

In Pro you link it to the Sch C toward the bottom of 1095A entry form. Other software likely has something similar.

This is a rare instance where you get to take an amount (1500) paid in 2024 as a deduction on 2023 return.

Thanks for the clarification. I will browbeat my software to put the $1,500 (from Form 8962) in as her 2023 SEHI entry.

This brings back memories of when the ACA first reared its ugly head and I was attending an annual two-day tax seminar presented at a local university. The tax pros were shaking their heads and muttering under their breath about obamacare and what was coming in a few months. Several of the "older" folks essentially said enough of this stuff, I'm about ready to retire anyway, and they did so by no longer being in the tax business at the start of the new year. I now understand where they were coming from. . .

Thanks again. Hope you soon get to take a breather from your tax work.

FE

[rbynaker]

The fun might not be over yet, once you put the $1,500 in that may lower income such that there's a lower repayment amount. It's a circular calculation. You would think computers would be good at this sort of thing but once in a while this creates an unsolvable math problem. Then we're left with "any reasonable method" to get this to work.

Rick

[Lion]

SEHI and APTC are an iterative calculation that your software should handle with the final "answers" flowing to the correct lines. You actually have a couple choices which I can't explain well, iterative until you're within $1 OR 3 iterations and stop, something like that. Your software probably chooses one of those or gives you an option to choose. As rbynaker explained, your payback of APTC then creates a lower repayment amount and on and on in a circle, or a spiral. Again, your software should end up with a repayment amount increasing your tax liability AS WELL AS an amount flowing to SEHI. Follow the money. If it's not happening, tell us what software you use.

PS ProSystem fx includes a worksheet showing the iterations, so you know where the numbers come from that go to the various places.

[FEDUKE404]

Thanks to all for their helpful comments.
I guess part of my overall confusion is that the amount shown on line 2 of Schedule 2 appears to be an additional TAX (by its location) and not additional INCOME.
Once that is clarified, are you still saying that at some point the amount on line 2 of Schedule 2 CAN be deemed to be an insurance "payment" for purposes of SEHI ?
What am I missing? ?

[kathyc2]

Thanks to all for their helpful comments.
I guess part of my overall confusion is that the amount shown on line 2 of Schedule 2 appears to be an additional TAX (by its location) and not additional INCOME.
Once that is clarified, are you still saying that at some point the amount on line 2 of Schedule 2 CAN be deemed to be an insurance "payment" for purposes of SEHI ?
What am I missing? ?

For the third time, yes, payment of advance premium credits counts as paying health insurance.

This is the 10th year for reconciling 1095A's. I'm rather astounded how otherwise knowledgeable preparers are totally flummoxed by the basics of how it works.

[Rapid Robert]

There are some simple basics here that have not being clarified, so let me try.

• 1. The ADVANCE Premium Tax Credit is not a credit. It is simply a loan in anticipation of a credit. Like any loan, it is neither income nor a deduction. Old timers may remember the Advance Earned Income Credit, which was similar.
• 2. Repayment of the APTC is not an expense. Think of it like this: suppose a family member came to you and said, "I think I need $1,000 for an urgent car repair". So, you loan them $1,000. Later, they report that the car repair ended up being only $800, so they give you back the $200 difference. That $200 is not a car repair expense (or any kind of expense), nor is it income to you. The $200 has nothing to do with the actual repair expense! Just like repaying loan principal is not an expense. (for any loan). Paying excess APTC is simply repaying loan principal.
• 3.. All that matters for SEHI is the actual amount paid by the taxpayer, which is the actual premium, minus the actual PTC.
  This calculation has nothing to do with points 1 & 2.

Since incomplete info was provided, I made up a case that is close to what was originally asked.

Form 8962 col (a) - $10,000 annual premium. (actual cost of insurance)
Form 8962 col (c) - $1,811 annual contribution amount (taxpayer is 249% of federal poverty level and SLCSP is $10K)
Form 8962 col (e) - $8,189 PTC allowed (= col (a) minus col (c) )
Form 8962 col (f) - $9,700 advance PTC

Note that col (e) and (f) are independent of each other.

• Repayment is col (f) minus col (e). $9,700 - 8,189 = $1,511. This goes on Schedule 2 Line 2. Per point #2 above, it is NOT a tax, even though it shows up on a line labeled "tax". It is simply repayment of loan principal.
• SEHI starts with calculating the taxpayer's own liability for insurance: col (a) minus col (e). $10,000 - 8,189 = $1,811. Because of the circular calculation (SEHI => AGI => PTC => SEHI), the PTC ends up slightly higher than the initial amount, $8,224. Note this is $35 higher than the initial amount, which makes sense since the the AGI is now 248% of federal poverty level, not 249%.
  The SEHI deduction is the actual premium col (a) minus the final PTC, or $10,000 - 8,224 = $1,776.

Note that the SEHI deduction has nothing to do with the APTC repayment!!!! This is what people get stuck on. If not clear, go back through the steps and tell me the first one that doesn't make sense to you.

Having said all that, I have to disagree with kathyc2 on the following:

"The payback of 1,500 counts as her SEHI deduction." No, it does not. Payback of APTC is like paying back loan principal, it is not an expense.

"This is a rare instance where you get to take an amount (1500) paid in 2024 as a deduction on 2023 return." No, the deduction on the 2023 return has nothing to do with the payback of APTC in 2024. The deduction for 2023 is the total insurance premium for 2023, minus the revised PTC (after circular calculation) for 2023.

[kathyc2]

"The payback of 1,500 counts as her SEHI deduction." No, it does not. Payback of APTC is like paying back loan principal, it is not an expense.

Well, you are wrong. It is not nearly as complicated as your example. The advance credits are simply an estimation of how much of the cost of insurance will be paid by the insured and how much will be paid by gov't. The SEHI expense is the amount insured paid to insurance company during year plus or minus any amounts from truing up the estimate on the tax return.

[Rapid Robert]

"Well, you are wrong."

And yet,, you can't or won't tell me which one of my steps is wrong. My example is not complicated,

• SEHI is just the difference of two numbers (premiums minus PTC).
• Truing up is just the difference between APTC and PTC.

APTC is a number that may or may not be based on reality. On the other hand, premiums and PTC are real numbers, not estimates.

Also, as I stated, I created a test case in my software, and the results confirm my conclusion: the SEHI deduction is not based on the repayment amount, not on form 8962 and not on any of the worksheets. And my software is not the bargain brand, so I trust it more than off the cuff comments in a forum. After today's filing deadline, why don't you re-create it in your software and see if you get a different result?

"The SEHI expense is the amount insured paid to insurance company during year plus or minus any amounts from truing up the estimate on the tax return."

But "truing up the return" depends on the income estimate that the taxpayer put into the marketplace, which may be far from the actual income upon which the PTC is based. So how could a "truing up" that is based on an inaccurate estimate lead to an accurate amount of actual expense?

You are stuck where most people are. "Truing up:" the return is just the difference between the APTC and PTC (again, not complicated). Where does the actual cost of insurance show up in the truing up calculation? It doesn't. If I underestimate my income at the marketpalce, I'll have a payback. If I overrestimate my income at the marketplace, I may have no payback at all, but an actual refundable credit. And yet, in both cases my actual subsidy and my actual out of pocket are the same, so my SEHI is the same (since SEHI has nothing to do with the estimate of income I put into the marketplace).

[Rapid Robert]

One more try: back to my car repair example, in your terms:

Scenario 1, as above: Car repair is $800, initial loan is $1,000. So "truing up" results in me getting back $200.

Scenario 2: now suppose I loaned $10,000, car repair is $800, so "truing up" gets me $9,200 back.

In 2nd case, my truing up amount is 46 times greater, yet the cost of the car repair is exactly the same in both: $800. But by your advice, the person who has to pay back $9,200 (truing up) has a much larger car repair expense.

[kathyc2]

One more try: back to my car repair example, in your terms:

Scenario 1, as above: Car repair is $800, initial loan is $1,000. So "truing up" results in me getting back $200.

Scenario 2: now suppose I loaned $10,000, car repair is $800, so "truing up" gets me $9,200 back.

In 2nd case, my truing up amount is 46 times greater, yet the cost of the car repair is exactly the same in both: $800. But by your advice, the person who has to pay back $9,200 (truing up) has a much larger car repair expense.

The party making the loan in your example would be gov't and the party receiving the loan would be the car owner (taxpayer). In both cases the expense to taxpayer is $800 as that is their net out of pocket cost.


The deduction for SEHI remains the total out of pocket from taxpayer (insured). Start with amounts paid to insurance company. In the event they have a payback they have an additional out of pocket expense that gets added to the amount paid direct to insurance company. In the event they have additional credit, they need to reduce the deduction by that amount. It's not rocket science.