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Covered California and Obamacare related questions from consumers, employers and agents are answered by Phil Daigle with the best information available at the time. Archived entries may no longer be accurate as the Covered California and Obamacare knowledge-base is evolving quickly. TO REQUEST A PERSONAL RESPONSE INCLUDE EMAIL ADDRESS.


Health Insurance Tax Deduction?

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Question: Can I claim self-employed health insurance deduction (1040, line 29), if now part of my premiums are subsidized by Obamacare? If yes, what will happen after IRS reconciles the advance premium tax credits (subsidy) for 2014 and withholds certain amount, because my income is more than I projected? Will I be able to claim that I paid this extra amount as health insurance premiums and add it to 2014 deduction?

Answer: You can only claim the net premium - the portion you actually pay after the subsidy - as an expense. Enter that portion as your self-employed health-insurance deduction. If there is a subsidy reduction for added income at the end of the year, that incremental net premium would also be added to your self-employed health-insurance deduction.

6 Comments

Additional documents concerning the Shared Responsibility Payment (the tax penalty for not having health insurance) can be viewed here: http://www.irs.gov/pub/irs-pdf/p5156.pdf

Information on possible exemptions from the penalty can be viewed here: http://www.irs.gov/pub/irs-pdf/p5172.pdf

You can read more about the Shared Responsibility Payment at the IRS website: http://www.irs.gov/uac/Individual-Shared-Responsibility-Provision

IRS has issued specific regulations explaining how to go about computing your self insured health insurance deduction.

You will need to do a calculation based on the total full premium, and the subsidy amount you received.

The problem is that the math is circular, so the IRS has suggested two alternative ways to calculate your deduction and tax credit amount.

Here are the links where I have written about this:

Household Income and the Self-Employed Health Care Deduction

Link: http://obamacareguide.wordpress.com/2014/07/25/household-income-and-the-self-employed-health-care-deduction/

Self-Employed Health Insurance Deduction — the Iterative Calculation

Link: http://obamacareguide.wordpress.com/2014/07/25/self-employed-health-insurance-deduction-the-iterative-calculation/

Self Employed Health Insurance Deduction – Alternative Calculation

Link: http://obamacareguide.wordpress.com/2014/07/25/self-employed-health-insurance-deduction-alternative-calculation/

Here’s a link to the actual IRS regulation:

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement;

Link: http://www.irs.gov/pub/irs-drop/rp-14-41.pdf

The IRS issued guidance on 8/11/14 on how to compute the Modified Adjusted Gross Income and Premium Tax Credit in those cases where a self-employed individual is eligible to take a health insurance deduction:

http://www.irs.gov/irb/2014-33_IRB/ar10.html

A blogger who has been following this issue provides his take on the math involved in using the “Iterative calculation” vs. the “Alternative calculation” mentioned in the IRS guidance:

http://thefinancebuff.com/irs-guidance-on-circular-reference-in-obamacare-premium-subsidy-and-deduction.html

I believe you can deduct all your health insurance premium as a self-employed person.

Please check, however, with a tax professional and/or the IRS.

I’ve wondered for some time now: if self-employed, which comes first, the MAGI or Tax Credit Subsidy?

Does one calculate the MAGI to then determine what the tax subsidy will be, or does one calculate the tax subsidy and then the resulting MAGI?

But wait… isn’t the tax subsidy based upon the MAGI? And wait again, when one has a self-employment deduction which adjusts (lowers) the Modified Adjusted Gross Income, isn’t the MAGI dependent upon the tax subsidy? It goes round and round, and makes you laugh a bit.

One calculation affects the other either way you do it.

IRS did not know when I inquired. We’ll find out soon.

Earlier in the year I was unemployed, and we enrolled in a CC family plan and are getting a subsidy. Now I am self-employed. Can I only deduct part of the family-plan premium as a business expense, and how would I figure out how much?

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