TurboTax Giving Way Too High of Self-Employed Health Insurance Deduction by Ignoring APTC Repayment Limitation

Forum|Forum|1 year ago
March 17, 2025
3 replies
0 views

I’m a sole proprietor with marketplace health insurance using TurboTax Home & Business Desktop 2024. So I enter my 1095-A data and link my plan to one of my Schedule C businesses and it calculates my Self-Employed Health Insurance Deduction (SEHID) which it then puts on Schedule 1, Line 17.

I’m still deciding how much Traditional retirement contribution I want to make. So I’m testing different amounts and each amount changes my AGI. At many AGIs, TurboTax seems to calculate my SEHID accurately. But at quite a few AGIs, it’s calculating what seems to be a very incorrect SEHID.

It’s actually calculating the SEHID seemingly incorrectly in a couple different ways at different AGIs. But there is one way in particular that seems to be a clear and common pattern.

When my AGI gets below the 400% FPL level, my APTC repayment is then limited to $1575 and I only pay back that $1575. It seems like my SEHID then shouldn’t possibly be allowed to be more than the premiums I already paid before plus $1575. However, TurboTax is calculating the SEHID to be the premiums I already paid before plus the APTC repayment that I would have to pay if it wasn’t limited.

So imagine I paid $1000 in premiums out of pocket throughout the year. And imagine the APTC repayment amount without the limitation would be $4000. But the repayment is actually capped to $1575 since my AGI is below 400% FPL. TurboTax is calculating an SEHID of $5000 ($1000+$4000), when it seemingly should only be $2575 ($1000+$1575). That SEHID of $5000 seems much higher than it should be or I think it’s allowed to be. I don’t think the IRS allows an SEHID that’s more than the total premiums plus actual APTC repayment you pay out of pocket, do they?

You might think TurboTax would catch that things don’t add up correctly at the end during its Review, but it does not flag it at all.

I’ve heard problems like this sometimes happen when the AGI is near a cliff like the 400% FPL level. And the problem is happening at those AGIs, which is bad enough since it’s exactly those cliff levels we often want to target when reducing our AGI with Traditional contributions. But it’s also happening at other AGIs farther away from the cliff too.

I also know some people mistakenly think their SEHID is wrong because they don’t realize it’s capped by their net business profit minus the deductible half of Self-Employment tax minus their Traditional contributions. However, this is a totally different issue. And in this case, the problem is it’s giving me way too high of an SEHID, not seemingly too low of one as in that other scenario.

This is causing a problem in multiple ways.

First, if many of the SEHID calculations are incorrect, I can’t trust the data when testing which level of Traditional contributions gets me the best results. Many of the results are actually faulty. So I have no idea how to figure out my best Traditional contribution number.

Second, I want to file soon and I don’t see how I can file with an SEHID that’s thousands of dollars higher than seems like should be allowed.

Perhaps there is something about the SEHID calculation that I don’t understand and these SEHIDs are actually correct. I would love to find out that’s the case. But I’m highly doubtful based on my knowledge of the rules, how the results compare with those from other online calculators given the same numbers, and also some other strange things TurboTax is doing as I move between different AGIs.

If I’m correct and TurboTax is calculating many of these SEHIDs wrong in this way, it would seem a great number of self-employed people may be filing with very incorrect SEHIDs.

One way to troubleshoot this would be to look at Form 7206. However for self-employed people using ACA, TurboTax doesn’t actually fully complete Form 7206 and just puts a footnote with the calculated SEHID at the bottom of it that can be viewed in Forms mode. So not only can’t we use Form 7206 to see what’s happening with the calculation, but maybe that’s part of why it’s calculating the SEHID incorrectly. If it correctly filled out Form 7206, it seems like the very first line on the form would prevent this issue from happening.

Given that it’s only weeks from April, this is becoming an urgent problem. Can someone help? I’d appreciate help here on this forum. And I’d also be happy to call in and talk to someone at TurboTax and show them in detail what’s happening if that will help them troubleshoot this problem and advise me what to do.

TurboTax Home & Biz Windows

lac528Author

@BillM223 @CatinaT1 @dmertz @LisaNMex I've seen you post very insightful replies to other posts related to issues with calculating SEHID. I wondered if you'd be willing to read over my post here about a possibly different problem with SEHID and offer your help. I'm really struggling with this and not sure what to do and would greatly appreciate your wisdom.

dmertz

Employee

I no longer comment on how TurboTax calculates the SEHID when PTCs are involved. The IRS says that you can use any reasonable method that ensures that sum of the SEHID and the PTC does not exceed the cost of the health insurance and that the PTC is correct given the the AGI that results from the SEHID. TurboTax's calculation that follows the IRS guidance in IRS Pub 974 ensures that, but might not be optimal when the iterative calculation does not converge.

lac528Author

@dmertz Thank you so much for responding.

But how does the APTC repayment limitation factor in? Without the limitation, my PTC + SEHID may add up to the total cost of the insurance. However, what I'm experiencing is that in quite a few cases, even after my AGI is low enough that I do have an APTC repayment limitation, my PTC + SEHID still add up to the total cost of the insurance even though due to the repayment limitation, I'm not actually paying back a huge % of the original repayment.

Take the example in my original post:

"So imagine I paid $1000 in premiums out of pocket throughout the year. And imagine the APTC repayment amount without the limitation would be $4000. But the repayment is actually capped to $1575 since my AGI is below 400% FPL. TurboTax is calculating an SEHID of $5000 ($1000+$4000), when it seemingly should only be $2575 ($1000+$1575). That SEHID of $5000 seems much higher than it should be or I think it’s allowed to be. I don’t think the IRS allows an SEHID that’s more than the total premiums plus actual APTC repayment you pay out of pocket, do they?"

In a case like this, with the $5000 SEHID, that $5000 SEHID plus my PTC qualified for may add up to the total health insurance cost, seeming to pass the test you mentioned from the IRS (if I'm reading it correctly). But since I'm not actually paying back the full $4000 repayment and only paying back $1575, it seems like it can't be correct that I get a $5000 deduction.

Am I thinking about this correctly?

boliver3

You are correct that SEHID cannot be greater than the amount you actually pay out of pocket.

If you don't mind the dinosaur approach . . . I used to calculate this manually when I was too cheap to buy tax software. It's an iterative process as you know because income affects PTC which then affects SEHID which then affects income. I found that only 2 or three rounds were needed to get within rounding error.

Try your scenarios, find the one that works best for you, and note what the PTC and SEHID should be; then enter your info into Turbo Tax and double check that the PTC and SEHID calculated like you expected. If everything is correct except the SEHID, there is a way to overwrite it in Forms Mode but note that any entries in forms mode invalidate the accuracy guarantee. At that point you might want to call or chat with an expect to see if they can't find a way to finagle it w/o you having to do an overwrite.

lac528Author

@boliver3 If you know all your other numbers and this SEHID issue is just a last thing you're trying to get "correct" then going through all the calculations one time and entering the answer makes sense. But I'm trying to use the software to test out many different Traditional contribution amounts to see how they change my overall Federal and State tax. So it would not be feasible to do all those complex PTC, repayment limit, and SHID calculations by hand over and over and over at each level. That's the exact thing I'm counting on the software for - to do those calculations so I can just plug the numbers into my own considerations to make my best choice of Traditional contribution. I think this is a very reasonable endeavor to use tax software for, yet because of this SEHID issue, I can't use TurboTax very well to do it and rely on the outcome. Especially because the place where TurboTax screws it up, right around the points where you get APTC repayment limits, are exactly the points we usually want to use Traditional contributions to get down to to take advantage of those repayment limits.

I did learn how to manually enter my own SEHID in TurboTax and, when it's obvious what it should be, I do that and then take the numbers I get using that SEHID. But wherever the SEHID isn't obvious, I'm at the mercy of TurboTax because I can't calculate it myself repeatedly given how complex it is to do.

I'm now trying some other software for comparison and they seem to do better and usually when there is an odd-man-out, it's TurboTax that doesn't agree with the others, though the others also have some issues in different aspects.

redheadsrock82

Hello! I had a similar problem. Have you had any success with Turbo Tax reflecting your numbers correctly? My SEHID was very high and did not take into account the limit on the repayment of excess PTC. It was giving me the full amount as a deductible as a footnote at the end of Form 7206. Then I realized I made a mistake and adjusted one of my expenses for my business. Once I did that, thinking the amount I owe would go down, instead the amount I owed went up. The only thing that changed was the new SEHID reflected correctly with a smaller amount that took into account my limit on repayment of excess PTC. Not sure what happened with the earlier number giving me the full deductible and then the new number reflecting it correctly. So I guess I fixed mine unknowingly! Thanks!