Possible bug in Tax Planner treatment of Self Employed Health Insurance

G.2

I've run into an issue with how the tax planner handles SE Health Insurance premiums. I've tried entering them in 2 ways -

1. in the planner Adjustments → Allowable S.E. Health Insurance Deduction field
2. in the planner Business Income or Loss Schedule C → Unspecified Business Expense field

I believe doing so should be equivalent, but that's not what the planner summary reports shows.

In case 1, there is no change in the Business Income or Total Income values; i.e., the values reported are the same as if there were no SE Insurance premium payments. There is a decrease in the Taxable Income, but the Self Employment Tax is much larger so that the Tax Due is larger (apparently it caculates the tax based on the larger value for Business Income).

In case 2, the planner report the appropriate decrease in the Business Income and Total Income fields as well as a decrease in the Tax Due (in my case it turns into a refund).

Seems like a bug to me… or am I missing something?

volvogirl

I don’t know about how Quicken handles it but for your tax return…… (it sounds like Q case 1 is doing it right).

For your own health insurance you need a Net Profit of Schedule C .  And it does not go directly on Schedule C so it won’t reduce your Schedule C profit or the self employment tax.

If your health ins exceeds your net self-employment income it gets split. An amount equal to your net self-employment income goes on Form 1040 Schedule 1 line 17 (to 1040 line 10) and the remainder gets added in to medical expenses on Schedule A.

volvogirl

Oh and for the self employment tax……You will pay Self Employment tax (Scheduled SE) on a Net Profit of $400 or more on Schedule C in addition to regular income tax on it.   You pay 15.3% SE tax on 92.35% of your Net Profit (If it is greater than $400).  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

Self employment health ins does not go on Schedule C so it won’t affect your Net Profit or the SE tax.

G.2

OK, so the two methods are not equivalent; that explains it. Thanks.