Why am I not allowed to take the insurance premium deduction for a marketplace plan?

Question

I just finished my 2019 taxes using TurboTax, and I'm pretty confused about one detail. I am self-employed, and during the portion of the process where I listed my business expenses and deductions, TurboTax said that I was not allowed to take my insurance premiums as a deduction because I purchased them through the exchange marketplace. Later on, I filled in the information about my insurance plan, but it didn't produce any deduction. Last year, I thought that I got this deduction. Nothing has changed for me, but this year I'm not getting it.

My understanding is that since I am self-employed I get a tax credit/deduction/something based on the insurance premiums that I paid. Since it is impossible to purchase health insurance as a self-employed person anywhere other than the marketplace, this seems like a bait-and-switch. Why am I not allowed to take this deduction on my 2019 taxes?

Answer 1

There are some situations where health insurance premiums are not deductible:

1) You paid for it with pre tax dollars

2) Your employer paid for it

3) You received an ACA subsidy

In the case of (2) and (3), you might be able to deduct out of pocket insurance costs that exceed what you employer or the subsidy paid toward the total cost. IOW, health insurance premiums paid with your own after-tax dollars are deductible.

Lastly, you don't get to deduct health insurance unless you have enough deductions to itemize.

I'm just an anonymous stranger on the internet. Consult with an accountant to verify this information.

Answer 2

I combed through my tax return, and I believe that I understand what happened and why it did not appear to affect my taxes owed.

TurboTax collects the data for self-employed health insurance at two points: once for non-exchange plans and once for exchange plans. The collection of this information is structured differently for each instance and the effect on the running total for taxes owed is instantaneous for the non-exchange premiums but delayed for the exchange plans.

Also, I was unaware that the "premium deduction" only reduces taxable income but does not impact gross income. This means that it only reduces the amount of income tax paid and not the amount of self-employment tax (which represents the preponderance of my tax obligation).

For these two reasons, I did not notice the adjustment that it made to my tax obligation (because it was delayed and much, much smaller than I anticipated). But in fact, TurboTax does appear to have accounted for my premiums paid and given me the appropriate tax benefit.