This is the message that shows up in HR Block Software after the most recent (March 26) update.
This message shows up EVEN IF the taxpayer is NOT entitled to ANY tax credit. In my case, because of unanticipated non-earned income during 2014 (a capital gain from sale of assets) my income is too high to qualify for the tax credit, and I will have to pay the full clawback amount.
Users of H&R Block report receiving this message when attempting to prepare their return after the latest update:
“Since you’re claiming the ACA premium tax credit and the self-employed health insurance deduction, your return requires additional calculations that aren’t part of the program. To file an accurate return, we recommend you complete your return with an H&R Block Tax professional.
You must fix this problem before filing.”
At this point the best option for self-employed taxpayers who are or may be entitled to claim a premium tax credit for exchange-purchased insurance appears to be TurboTax, which appears to calculate amounts correctly.
TaxAct software seems to also be able to handle the correct calculations, so may be an acceptable alternative to H&R Block.
Worried about paying a clawback? If you received an Advance Premium Tax Credit to subsidize your health insurance in 2014, but then had an unexpectedly good year financially in 2014, you may be required to pay all or part of the credit you received. However, IRS has announced that it will waive penalties for late payment for taxpayers who are otherwise current on their taxes and who file their returns on time — either April 15th or in October after filing for an automatic extension. The waiver of penalties includes an extension of time to pay the clawback amount. Interest will still be charged, so it’s advisable to pay by April 15, 2015 if possible; but this may be welcome news for taxpayers who did not anticipate the impact of the clawback amount.
Here’s what the IRS says:
I had assumed, apparently too optimistically, that the major tax prep software programs would be able to easily handle the problem of reconciling the self-employed health insurance deduction (line 29 on form 1040) with the premium tax credit calculation (form 8962). After all, as complex as the IRS instructions may be, the actual calculation is simple math. IRS regulations have now given clear guidance, with two methods for calculation, and this should be a fairly easy task to integrate into the program software.
Unfortunately, this does not appear to be the case. I personally use H&R Block tax prep software and buy the “Premium” version which is advertised as best for self-employed. But when I experimented with the program, I found it didn’t seem to be making any reconciliation at all. Instead, the program was erroneously calculating the tax credit based on the MAGI with whatever value had been previously entered as the total self-employment premium, without making any adjustments as required by IRS.
New from the IRS:
Health Care Law: What’s New for Individuals & Families
Available at www.irs.gov/pub/irs-pdf/p5187.pdf
This post is my effort to translate an IRS regulation from legalese into English. It’s going to take a while. The source document is here: 26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement;
1. Some taxpayers are eligible to claim both a self-employed health insurance deduction and an insurance premium tax credit:
.03 Some taxpayers enrolled in a qualified health plan and eligible for the premium tax credit may also be allowed a deduction under § 162(l). Section 1.162(l)-1T of the Temporary Income Tax Regulations provides rules for taxpayers who claim a §162(l) deduction and also may be eligible for a § 36B credit for the same qualified health plan or plans. Under § 1.162(l)-1T(a)(1), a taxpayer is allowed a § 162(l) deduction for specified premiums not to exceed an amount equal to the lesser of (1) the specified premiums less the premium tax credit attributable to the specified premiums, and (2) the sum of the specified remiums not paid through advance credit payments and the additional tax imposed under § 36B(f)(2)(A) and § 1.36B-4(a)(1) with respect to the specified premiums after the application of the limitation on additional tax in §36B(f)(2)(B) and § 1.36B-4(a)(3)
If a self-employed taxpayer is eligible for an insurance premium tax CREDIT, then the amount of the DEDUCTION is calculated by subtracting the amount of the tax CREDIT from the maximum allowable DEDUCTION. Example: Taxpayer earns $40,000 and pays $8,000 for health insurance purchased from an exchange. If the calculation shows that the taxpayer is eligible for a $3000 premium tax credit, then the maximum allowable insurance deduction would $5,000.
If a self-employed taxpayer who bought insurance from an exchange has already received an ADVANCE CREDIT, and if that credit is more than the taxpayer is entitled to, then the maximum allowable DEDUCTION is equal to the sum actually paid out-of-pocket for the reduced premium, plus the sum of the total amount of any clawback tax owed because of the excess ADVANCE CREDIT payments. Example: Taxpayer claimed a credit based on an anticipated $40,000 income, but taxpayer in fact earned $70,000 in 2014. Taxpayer received $4500 in advance credits, and paid $3500 directly to the insurance company. Because of taxpayer’s higher income, no tax credit is allowed, and taxpayer owes an additional $4500 in taxes. However, that amount may be added to the out-of-pocket expenses to calculate the deduction — taxpayer then deducts the full $8000 deduction ($3500 paid in premiums plus $4500 of tax owed).
Under ACA, eligibility for Medicaid and premium-reduction subsidies for exchange policies is governed by the poverty guidelines for the policy year. The 2014 guidelines are now available and can be viewed at: http://familiesusa.org/product/federal-poverty-guidelines
In the Medicaid expansion states, individuals and families who fall under 133% of the poverty line will receive coverage through Medicaid. Those whose incomes are between 133% and 400% are eligible for subsidies and/or a tax credit when purchasing insurance through an exchange.
In states that have not expanded Medicaid, individuals and families are eligible to purchase subsidized insurance from an exchange so long as their anticipated income is at or above the 100% poverty level.
If a taxpayer is approved to receive a subsidy by an exchange, but their total income for the year as reported on their 2014 return falls below the 100% level, their tax credit will be computed as the value that would apply if their income was exactly 100% of the FPL. Continue reading