Self-employed contractor: Can I deduct health insurance premiums with marketplace tax credits?
Title: Self-employed contractor: Can I deduct health insurance premiums with marketplace tax credits? 1 I'm currently working as a self-employed contractor (getting 1099s for all my work) and I've been navigating the whole health insurance situation through the marketplace. The state provides me with a pretty decent tax credit that helps bring down my monthly premium costs. What I can't figure out is whether I'm allowed to deduct the remaining portion of my health insurance premiums as a self-employment expense on my taxes. Since I'm already getting a tax credit for part of it, I'm confused if I can still claim the rest as a deduction or if that would be considered "double-dipping" in the eyes of the IRS. I've been searching online for weeks and reading through IRS publications, but I keep finding contradictory or vague information. Some sources suggest I can deduct what I actually pay out of pocket, while others make it sound like receiving any premium tax credit disqualifies the entire premium from being deductible. Has anyone dealt with this specific situation before? I'd really appreciate some clarity before tax season rolls around!
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Zoe Wang
8 You can deduct the portion of premiums that you actually pay out of pocket as a self-employed health insurance deduction on Schedule 1 (not Schedule C). The amount covered by the premium tax credit is not deductible since you didn't pay that portion. Here's how it works: If your total premium is $800/month and you get a $500 tax credit, you're paying $300 out of pocket. You can deduct that $300/month ($3,600 for the year) as your self-employed health insurance deduction. The $500 credit portion isn't deductible because you didn't actually pay it. Keep in mind that the self-employed health insurance deduction is an adjustment to income (above-the-line deduction), not an itemized deduction or business expense. This is a common point of confusion.
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Zoe Wang
•12 Thanks for the explanation! I was about to put this on my Schedule C. So just to make sure I understand - I'll put the $3,240 I actually paid out of pocket on Schedule 1, but not include the $6,700 that was covered by the premium tax credit? And this doesn't reduce my business income on Schedule C at all?
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Zoe Wang
•8 That's exactly right. The self-employed health insurance deduction goes on Schedule 1, Line 17 (on 2023 forms), not Schedule C. It doesn't reduce your business income or self-employment tax, but it does reduce your income tax. Your understanding is correct - you can only deduct the $3,240 you actually paid out of pocket, not the $6,700 covered by the premium tax credit. The IRS doesn't allow you to deduct expenses you didn't actually pay.
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Zoe Wang
5 I went through this exact same confusion last year! I'm a freelance graphic designer and spent HOURS trying to figure this out. I finally discovered taxr.ai (https://taxr.ai) and it completely solved this problem for me. Their system analyzed my marketplace documentation and figured out exactly what portion of my premiums were deductible. It turns out I had been doing it wrong for 2 years - I was only deducting a fraction of what I could have! They explained that you deduct what you pay out-of-pocket, but the placement on tax forms matters a lot (Schedule 1 vs Schedule C makes a huge difference). I also found out through them that there's a specific ordering to these calculations that affects your overall tax picture. The documentation they provided made it crystal clear.
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Zoe Wang
•19 How does their service work exactly? I've been doing my own taxes for years but this self-employed health insurance stuff with marketplace credits is confusing the heck out of me. Does it actually give you specific guidance for your situation or just general info?
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Zoe Wang
•15 I'm a bit skeptical. Couldn't you just call the IRS directly and get this information for free? Or use one of the regular tax software packages? What makes this service worth using?
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Zoe Wang
•5 The service works by analyzing your specific tax documents and situations rather than just giving generic advice. You upload your marketplace forms (like 1095-A) and it identifies exactly what portions are deductible based on your specific premium amounts and tax credits. It's personalized to your situation rather than the general guides you find online. The big difference from regular tax software is that it explains WHY certain parts are deductible while others aren't, and exactly where they belong on your tax forms. Most tax software just asks you questions but doesn't explain the reasoning or check if you're entering information correctly.
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Zoe Wang
19 Just wanted to follow up and say I tried taxr.ai after posting my question here. Totally worth it! I uploaded my 1095-A and they showed me exactly which numbers to use for my self-employed health insurance deduction. Turns out I was about to deduct way too little. What really helped was the explanation of how the premium tax credit affects the deduction calculations. They even provided documentation I can keep with my tax records in case of audit. Super clear and specific to my situation without having to wade through pages of IRS publications.
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Zoe Wang
3 I had the exact same question last year and wasted THREE DAYS trying to get through to the IRS for an answer. Kept getting disconnected or waiting for hours. Finally found Claimyr (https://claimyr.com) and they got me connected to an actual IRS agent in under 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that I could deduct the portion I paid out of pocket (not the part covered by tax credits), and explained it needs to go on Schedule 1, not Schedule C. They also explained how this affects the premium tax credit reconciliation on my tax return - something my tax software didn't clarify at all. Saved me from potentially making a costly mistake. The IRS has detailed information, but sometimes you need to actually talk to someone to get the right answer for your specific situation.
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Zoe Wang
•20 Wait, how does this actually work? I thought it was impossible to get through to the IRS during tax season. Are they some kind of paid priority line or something?
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Zoe Wang
•15 This sounds like paying to get access to a government service that should be free. I'm extremely skeptical that this even works. The IRS phone lines are notoriously understaffed. How could a third-party service possibly guarantee getting through?
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Zoe Wang
•3 It's not a priority line - they use technology to navigate the IRS phone system and wait on hold for you. When they reach a representative, they call you and connect you directly to the agent. You're speaking directly with actual IRS employees, not intermediaries. The service exists because the IRS is so understaffed that average wait times can be 2-3 hours during tax season, if you can get through at all. Many people simply can't stay on hold that long during a workday. They basically handle the waiting part for you.
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Zoe Wang
15 I have to eat my words and admit I was wrong. After being skeptical about Claimyr, I decided to try it because I was getting desperate for answers about my self-employment health insurance deduction situation. I was connected to an IRS agent in about 25 minutes (would have been hours of hold time otherwise), and they walked me through exactly how to handle my marketplace insurance with the premium tax credits. The agent even referenced the specific IRS publication sections that applied to my situation. Being able to ask follow-up questions and get immediate clarification made a huge difference. Totally changed my understanding of how these deductions work with the premium tax credits.
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Zoe Wang
10 One thing nobody's mentioned yet - make sure you're considering the impact on your AGI when you take the self-employed health insurance deduction. Since it reduces your AGI, it might actually affect the amount of premium tax credit you're eligible for in the first place (since PTC is based on income level). This creates a circular calculation that can be tricky to figure out. Your deduction affects your credit, but your credit affects your deduction. Some tax software handles this automatically but others don't.
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Zoe Wang
•7 Wait, so this could actually change how much premium tax credit I should have received? Could this potentially trigger having to pay back some of the advance premium tax credit if taking the deduction drops my AGI too much?
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Zoe Wang
•10 You've identified exactly the complicated part of this calculation. Yes, it can potentially affect your premium tax credit amount. The self-employed health insurance deduction lowers your AGI, which can increase your eligible premium tax credit. But that increased credit means you paid less out of pocket, which reduces your deduction. Most good tax software should handle this circular reference automatically. If you're doing it manually, you may need to do a few rounds of calculations to get to the right numbers. The IRS has worksheets specifically for this situation.
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Zoe Wang
22 Has anyone here actually been audited over the self-employed health insurance deduction? I'm worried about claiming it wrong and getting in trouble.
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Zoe Wang
•8 I haven't personally been audited specifically for this, but I can tell you what documentation to keep: save your Form 1095-A from the marketplace, all premium statements showing what you actually paid, and any communication about your premium tax credit. Also keep the marketplace's determination of your advance premium tax credit. If you're claiming things correctly (only deducting what you actually paid), and you have documentation to back it up, an audit shouldn't be a major concern.
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Mateo Lopez
I went through this same situation last year and can confirm what others have said - you can absolutely deduct the portion you pay out of pocket after the premium tax credit. The key is keeping good records. What helped me was creating a simple spreadsheet tracking my monthly premiums, the advance premium tax credit amounts, and what I actually paid each month. When tax time came, I had clear documentation showing exactly what portion was deductible. One additional tip - if you have any months where you didn't receive the advance credit (maybe due to income changes), those full premium amounts are deductible for those months. The IRS allows you to deduct any premiums you actually paid, regardless of whether you were eligible for credits you didn't receive. Make sure to reconcile everything on Form 8962 when you file - this ensures your actual income aligns with the premium tax credit you received throughout the year.
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Mia Rodriguez
•This is really helpful! I like the spreadsheet idea - that would definitely make tax prep easier. Quick question about the months where you didn't receive advance credits - how did you document that for the IRS? Did you just keep copies of the marketplace notifications showing the credit wasn't applied those months? I'm in a similar situation where my income fluctuated and I had a few months without advance credits, so I want to make sure I handle the documentation correctly.
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