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Under the ACA, you estimate your income for the year when signing up for a health insurance plan via the exchange. If you are eligible for a subsidy, it is calculated based on this estimated income, and your monthly premium is then calculated with the subsidy taken into account. If at the end of the year it turns out your income was higher than you thought, you must repay the excess subsidy, and if your income was lower than you thought, you can receive a credit for the subsidy you should have received.

Self-employed individuals can deduct health insurance premiums as an "adjustment to income" on line 29 of the 1040.

My question is, does the premium tax credit repayment as described above count as a deductible "health insurance premium"? For instance, suppose as a self-employed individual I paid $1200 for health insurance premiums over the course of the year, but then at the end of the year it turns out my subsidy was in excess, and I now owe an additional $300 in premium tax credit repayment. On line 29 of my 1040 (self-employed health insurance deduction), can I enter $1500, or only $1200? Or, conversely, if it turns out I'm eligible to get $300 back because I was eligible for more of a subsidy than I thought, must I deduct only $900?

EDIT: I want to clarify something. Some of the answers below appear to be referring to the general-purpose medical expenses deduction. This is available to all taxpayers, applies to a wide range of medical expenses, applies only to expenses over 10% of AGI, is an itemized deduction, is reported on Schedule A with the rest of the itemized deductions, and thus can only be taken if you itemize deductions. The deduction I am referring to (described here) is for self-employed people only, is not subject to the 10% limit, applies only to insurance premiums, is an adjustment to income (not an ordinary deduction), is taken directly on Form 1040, and hence can be taken even if you don't itemize deductions. I am specifically asking about this self-employment adjustment to income for health insurance premiums, not about the general deduction for medical expenses.

  • I understand that this post is a year old, but it looks the situation BrenBarn is asking about wasn't addressed in the answers- ie is the premium plus a repayment of a credit able to be taken as an above the line deduction- more so how is this calculated (it seems to become circular if the premium+repayment lowers the AGI, and a lower AGI reduces the repayment amount?) – Joe Gray Mar 4 at 23:40
  • @JoeGray+ YES it is more complicated because PTC is affected by your AGI (with modifications) and your AGI is affected by the self-employed health insurance deduction. In pub 974 see the section "Self-Employed Health Insurance Deduction and PTC" which is currently 18 pages. (This is also referenced from the 8962 instructions.) – dave_thompson_085 Mar 6 at 13:51
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I tracked down the author of the rules in Washington DC. She returned my call! Yes you can enter what would have been your premium before the repayment amount was assessed on line 29. I had to repay the entire credit so that certainly help relieve an expensive calamity!

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Per the IRS, any repayment of the advance premium credit is considered to be a premium payment in the same tax year, and is deductible as such. You can see the official IRS answer on their website at https://www.irs.gov/publications/p502/ar02.html. Here is the relevant text from that webpage:

Premium Tax Credit:

You can't include in medical expenses the amount of health insurance premiums paid by or through the premium tax credit. You also can't include in medical expenses any amount of advance payments of the premium tax credit made that you did not have to pay back. However, any amount of advance payments of the premium tax credit that you did have to pay back can be included in medical expenses.

Example 1.

Amy is under age 65 and unmarried. The cost of her health insurance premiums in 2016 is $8,700. Advance payments of the premium tax credit of $4,200 are made to the insurance company and Amy pays premiums of $4,500. On her 2016 tax return, Amy is allowed a premium tax credit of $3,600 and must repay $600 excess advance credit payments (which is less than the repayment limitation). Amy is treated as paying $5,100 ($8,700 less the allowed premium tax credit of $3,600) for health insurance premiums in 2016. Because $5,100 is more than 10% of Amy's AGI, when she fills out her Schedule A, she enters $5,100 on line 1.

  • Your "Example 1" refers to taking an ordinary deduction for medical expenses on Schedule A. What I'm asking about is an "adjustment to income" (aka an above-the-line deduction) which is taken on Line 29 of Form 1040. Nonetheless, I agree with your conclusion based on another section in the Publication 502 you linked to (Health Insurance Costs for Self-Employed Persons). However, I still don't see any IRS source that specifically addresses the PTC repayment vis-a-vis the self-employed health insurance deduction. – BrenBarn Jan 29 '17 at 2:11
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I think it can be inferred that you can use your insurance premiums as an adjustment (front page line 29) or as a deduction if you combine insurance premiums with other medical expenses and itemize (Schedule A line 1) which ever works best for you...

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This is taken from Pub 502 if you look at the last sentence in the passage you will see that you can in fact deduct the repayment amounts. Any further questions please feel free to reach out.

Premium Tax Credit You can't include in medical expenses the amount of health insurance premiums paid by or through the premium tax credit. You also can't include in medical expenses any amount of advance payments of the premium tax credit made that you did not have to pay back. However, any amount of advance payments of the premium tax credit that you did have to pay back can be included in medical expenses.

  • You didn't link to what section of Pub 502 you're looking at, but it looks like your answer is the same as dxr's, and has the same issue: this is describing the general deduction for medical expenses, not the specific, above-the-line adjustment to income for health insurance premiums paid by self-employed individuals. – BrenBarn Mar 23 '17 at 4:56

protected by Chris W. Rea Mar 6 at 12:47

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