…. or at least added more confusion to the mix.
I’m not going to be able to address this in one post, so I’ll start with a link:
IRS Revenue Procedure 2014-41 — PDF at http://www.irs.gov/pub/irs-drop/rp-14-41.pdf
“26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement;
determination of correct tax liability.”
This addresses the issue raised back in my post, “Figuring your Household Income (Part Two)“: How to calculate AGI and premium tax credit when you are self-employed and also eligible for the self-employed health insurance deduction. As I pointed out “This is one area where the present wording of the law seems to provide an extra benefit for the self-employed, if in fact you can use the full cost of the premiums reduce AGI for purposes of subsidy eligibility.”
I commented, “The double-benefit from being able to deduct 100% of health insurance premiums in order to reduce AGI, and then used the same deduction to qualify for a substantial tax credit seems to fly in the face of the way the tax law usually works. Generally the laws are written to prevent taxpayers from applying the same expense to benefit in multiple ways.”
And I gave some advice: “The safest choice for self-employed individuals who are unsure of subsidy eligibility is to buy insurance through an exchange, opt to pay the full cost premium cost, with a plan of maximizing tax deductions with the possibility of a substantial tax refund down the line. That way you will not be caught with a huge tax bill in 2015 because your calculations were off the mark.”
And, more important:
“Above all. Do not rely on this blog or any other for tax advice!!! It’s possible that the very best investment you can make for your business in 2014 will be to hire a tax professional to help guide you through this maze.”
Now the IRS has added its explanation as to how you can do this calculation, maybe. If you happen to be self-employed as an accountant or software programmer, you might be able to figure this out The rest of us may feel very grateful that we do have health insurance under ACA, because we may need to see a doctor to treat the headache we are all going to get from trying to do the mathematical gymnastics IRS suggests. More to come– in the meantime, you can read this yourself at the link above.
Two other new ACA related docs to peruse while you are at it:
Revenue Procedure 2014-46 (provides the 2014 monthly national average premium for qualified health plans that have a bronze level of coverage for taxpayers to use in determining their maximum individual shared responsibility)
Revenue Procedure 2014-37 (provides the methodology to determine the applicable percentage table in IRS § 36B(b)(3)(A) used to calculate an individual’s premium assistance credit amount.)
An Ad Hoc Guide to the Affordable Care Act 
The IRS released draft 2014 Form 1040 and Form 8962 Premium Tax Credit which seems deceptively simple single page for most taxpayers. The net credit (total less advances) if positive is transferred to line 69 (payments section) and if negative is transferred to line 46 (tax due section). It’s unclear how the credit determined by this form will affect the deduction of self employed health insurance line 29 for AGI and the medical expenses on Schedule A.
PTC form requires entry for applicable Federal Poverty Level which will enlighten many of where they stand in comparison with national standard. The percentage of income over FPL determines the annual maximum contribution for health care using 4 decimal Applicable Figure using table of percentages from 133% to 299% in single digit increments (<133% is 0.0200 and 300-400% is 0.0950). A simple math and table lookup procedure but only if MAGI is not affected by the credit. It seems anyone with insurance deduction on line 29 will need help from computer based program and tax specialist. If IRS Revenue Procedure 2014-41 requires 15 pages to explain this perhaps the law needs revision.
The PTC calculations are even more complex if taxpayer has other factors such as partial year or marriage. It's unfortunate that taxpayers that get this assistance rarely have any complexity in their tax returns so aren't prepared to deal with the PTC form and the new Form 1095-A.
Thank you for sharing the form! Anyone who wants to get a headache can take a look here:
Draft form 8962
Draft 2014 1040
Draft form 1095-B
Even though it is all very confusing, I am thinking that most self-employed individuals who qualify to and do take the SE Health Insurance deductions are used to some complexity in their tax situations — after all, we have to figure out issues like deductions for depreciation and calculating self employment tax as well. So I think most of us are either working with a tax preparer or using tax preparation software. Even my kids use tax prep software for relatively simple tax situations — it’s just easier with the software, and I am assuming (hoping) that most of the complexity in the math will be handled by the software. The scary part is simply the differences that will be seen in tax liability for those who are just at the 400% tax threshold — there are situations where a few dollars more income might make a rather large difference in taxes owed.
2014 tax return software is now available! TaxAct just released their preview edition for filing 2014. It’s free to download and can be basis for preliminary tax planning. NOTE: it does not contain final forms or regulations but does have Form 8962 with instructions. You will have to wait until January 2015 to get the filing version from TaxAct or any other provider.
The preview version requires manual entry using iteration steps to get the line 29 self-employed health insurance deduction.to be net of the amount on line 69 Net premium tax credit from Form 8962. There is a worksheet that made this easy and my sample data took 5 iterations to get final result. It calculated the same result as my Excel worksheet which did the iteration automatically. This program is very effective for testing what-ifs and getting a better idea of where you stand on tax due.
The final program TaxAct and others create may have other options or formulas built-in to make it easier to use especially since even one dollar of AGI change can affect the calculations. The Form 8962 will need to be one of the last steps after all income and deductions for AGI are determined. 2014 returns will be a tough year for tax preparation and if you plan to do your own taxes you may want to have a qualified professional review the results before filing.