Common pitfalls when reporting SEHI deductions and premium tax credits

Helping self-employed taxpayers means more than crunching numbers. You’re also guiding them through a system that rarely plays fair, especially when Marketplace coverage complicates what should be a straightforward deduction.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: Where can a taxpayer find the second-lowest-cost silver plan (SLCSP) premium for a given taxpayer during the year?

A: The SLCSP is included in the IRS’s Form 8962, Premium Tax Credit, instructions. The IRS also provides yearly tables of SLCSP amounts based on zip code, household size and county. Taxpayers living in a federal marketplace state can use the healthcare.gov SLCSP look-up tool. If they are in a state-based marketplace (CA, NY, MA, etc.), these states have their own tools or tables.

Q: Where can I find how to calculate the alternative calculation for the year of marriage?

A: If a taxpayer qualifies (see Table 4 and Worksheet 3 in the Form 8962 instructions), then there are worksheets in Pub. 974, Premium Tax Credit (PTC). The alternative calculation for the year of marriage begins on Page 38 of the publication. An example of the alternative calculation for the year of marriage starts on Page 44 of the publication.

Q: How does a taxpayer prove they meet the affordability safe harbor to keep their PTC?

A: There is no specific information in Form 8962 or IRS Pub. 974 instructions to prove they met the affordability safe harbor. If the premiums for the employer-provided health insurance exceed 9.02% of household income, then the plan is considered unaffordable, thus allowing the taxpayer to obtain marketplace insurance. This information is provided in §1.36B-2(c)(3)(v)(A)(1) and §1.36B-2(c)(3)(v)(A)(3).

Q: How does a taxpayer record an allocation of the policy amounts on Form 8962?

A: Form 8962, page 2, Part IV, Allocation of Policy Amounts, is used when a taxpayer shares a policy with someone not on the same tax return. Examples include: divorced or separated taxpayers (whose ex-spouse is on the marketplace plan), dependents who file their own returns, and someone who is not a dependent, as long as they are covered under the same marketplace policy but belong to a different tax household. The allocation itself is done on Line 30 (Lines 31-33 for multiple allocations). Make sure to include the policy number, Social Security number (SSN) and the allocation start and stop months when completing the form.

To learn more about PTE elections, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.