Last time when I looked at how different tax software handled the circular calculation of the ACA tax credit and theself-employed health insurance tax deduction, H&R Block software failed at the task. See Tax Software Bake-Off: Self-Employed Health Insurance and ACA Premium Tax Credit.
It’s been two years. I wanted to see if it caught up. I’m glad to report it did. The H&R Block software makes the correct calculation now. Here’s how to do it in H&R Block Deluxe desktop software. I’m using this simple example:
You are single, self-employed, with no dependent. You had health insurance from the ACA marketplace all year in 2016. The second lowest cost Silver plan was $600/month. The full unsubsidized premium for the plan you chose was $500/month. Based on your estimated income, you got a $150/month advance credit. You paid net $350/month. After deducting your business expenses, your income from self-employment was $45,000 for the year. You don’t have any other income or deductions.
Go to Federal -> Adjustment -> Self-Employed Health Insurance.
Enter the full unsubsidized premiums you paid in the year. Include both what you paid out of pocket and the advance premium credit. You will reconcile the advance credit later.
Go to Federal -> Taxes -> Health Care Coverage.
In our simple example everyone had insurance.
Check the box for a plan from the ACA marketplace.
In our simple example we don’t have any of these unique situations here.
We need to add the 1095-A from the marketplace.
Enter the information as requested. Scroll down to Part III. In our simple example you had the same plan for all 12 months and the numbers on the 1095-A are all correct.
Enter the monthly amounts from the 1095-A.
In our simple example we only have one 1095-A.
Which months you were self-employed determines how much counts as deductible self-employed health insurance.
The machine crunches the numbers. It says you are eligible for additional tax credit.
You can verify you are also receive a tax deduction. Click on Forms at the top. Open your 1040 form. Look at line 29. That’s your deduction.
Scroll down to line 69. There is your tax credit.
$2,590 in deduction plus $1,610 in tax credit equals $4,200. You paid net $350 * 12 = $4,200 out of pocket. The numbers add up! The software did the circular calculation and it figured out the split between the tax deduction and the tax credit. It also matched the result from TurboTax for the same example. This is where the computer shines. If you take this to a tax professional, they will have to use their software to calculate the split anyway. I bet they are not able to do it by hand.