Self-Employed Taxpayers and the Affordable Care Act: Double the Benefits (Part 1)

Self-Employed Taxpayers and the Affordable Care Act: Double the Benefits (Part 1)

ACA for Self-Employed Taxpayers

The Affordable Care Act (ACA) has brought on a host of changes to the tax code that came into effect in 2015. Tax professionals now need to inquire about health coverage for clients and their households. Given the instability self-employed taxpayers can be prone to, which makes tax planning a challenge, what do these new regulations bring for those who work for themselves?

Self-Employment Health Insurance Deduction

A frequently overlooked tax benefit for the self-employed is the ability to take medical insurance premiums as an above-the-line deduction per §36B, which can lead to significant benefits since several deductions and credits are contingent on AGI limits. The health insurance exchanges borne by the ACA have provided coverage to innumerable freelancers and entrepreneurs who previously lacked access to insurance. However, there have been several teething issues with low and moderate income self-employed taxpayers being hit the hardest: how are they able to claim the self-employment health insurance deduction and the premium tax credit (PTC)?

Basic Eligibility for Premium Tax Credit

Eligibility for PTC primarily hinges on the taxpayer’s AGI being 400% of the federal poverty level or less. The taxpayer must claim the credit on Form 8962, Premium Tax Credit, and this form also must be used to report any receipt of advance premium tax credit payments (APTC) as well as the shared responsibility payment if the taxpayer lacked minimum essential coverage and did not qualify for an exemption.

The taxpayer also must have purchased a plan through a federal or state exchange. Plans purchased from a private broker will satisfy the minimum essential coverage requirement and qualify for the self-employment health insurance deduction, but they are not qualified plans for PTC purposes.


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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.