affordable care act tax deduction

AGI & Advanced Premium Tax Credit

A headache currently faced by many self-employed taxpayers is the simple question of eligibility, particularly if desiring relief with monthly advanced premium tax credit (APTC). If one wants to claim this subsidy now opposed to waiting until they filed their return, the exchanges want an estimate of AGI to determine how much is allowed. But how would the taxpayer know their AGI without knowing how much they paid in health insurance premiums given the above-the-line deduction? As tax professionals have also seen this filing season so far, many self-employed taxpayers have also underestimated their AGI and wound up having to repay APTC. Others overestimated and had to wait until they filed to even find out they were eligible.

Calculating AGI

Revenue Procedure 2014-41 addressed this issue by offering two different methods of figuring dual eligibility for these benefits. The iterative calculation offers a more precise outcome while the alternative calculation is simplified but may lead to less benefit to the taxpayer. Both methods are contingent on determining AGI based on §162(l) but APTC payments cannot be factored into the premium totals when computing the above-the-line deduction.

This may prove problematic with both professional and retail tax software packages not accounting for these methods.

Self-employed taxpayers are still entitled to relief if their household income is below the threshold outlined. Be prepared to weigh the iterative and alternative calculations to see what is best for your clients, as well as claiming APTC or waiting until they file.

Resources

To obtain all the latest information on the 2015 tax season, try out the Annual Tax Refresher Course. The Annual Tax Refresher course is based directly off a course outline delivered by the IRS. This secures the validity of all courses and the content contained within. All tax preparers are provided with the appropriate material in order to keep them up-to-date on the changes to the tax code each year. My Tax Courses Online is an IRS-approved continuing education provider and also offers exam preparation courses.

CIRCULAR 230 DISCLOSURE: Any U.S. federal tax advice contained in this writing (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.