If you're self-employed and buy health insurance through the ACA Marketplace, there's an IRS document you need to know about: Publication 974.
Most freelancers have never heard of it. Most tax software ignores it. And that ignorance costs self-employed people $500-$2,000+ per year in overpaid taxes or surprise APTC repayments.
Here's what IRS Publication 974 is, why it matters, and how to use it correctly when filing your taxes.
What is IRS Publication 974?
IRS Publication 974 is the official IRS guide for calculating the Premium Tax Credit (PTC) and reconciling your Advance Premium Tax Credit (APTC) on Form 8962.
The full title is: "Premium Tax Credit (PTC)"
Published annually by the IRS, Pub 974 explains:
- How to calculate your Premium Tax Credit eligibility
- How to reconcile APTC you received vs. PTC you qualified for
- How to handle the Self-Employed Health Insurance Deduction (SEHID) interaction
- What to do if you received too much or too little APTC
- PTC (Premium Tax Credit): The actual tax credit you qualify for based on your real annual income
- APTC (Advance Premium Tax Credit): The monthly subsidy paid to your insurer based on your estimated income
- SEHID (Self-Employed Health Insurance Deduction): The tax deduction for health insurance premiums paid by self-employed individuals
Why Publication 974 Matters for Self-Employed People
Here's the problem: if you're self-employed, two of your tax benefits are interdependent:
- Your Self-Employed Health Insurance Deduction (SEHID) reduces your Modified Adjusted Gross Income (MAGI)
- Lower MAGI means you qualify for more Premium Tax Credit (PTC)
- But more PTC means you paid less out-of-pocket for premiums
- Which means your SEHID is smaller
- Which increases your MAGI again...
Most tax software handles this incorrectly. They either:
- Calculate SEHID first, then PTC (wrong order)
- Ignore the interaction entirely (very wrong)
- Let you manually override values (dangerous and audit-prone)
Publication 974 provides the official solution: the Iterative Calculation Method.
The IRS Iterative Calculation Method (Pub 974)
Section 3 of Publication 974 describes the iterative method for solving the SEHID/PTC circular dependency.
Here's how it works:
Step-by-Step Iterative Process
- Start with initial MAGI (your AGI before SEHID)
- Calculate initial PTC based on that MAGI
- Calculate SEHID based on the PTC from step 2
- Recalculate MAGI using the SEHID from step 3
- Recalculate PTC using the new MAGI from step 4
- Repeat steps 3-5 until the numbers stop changing (converge)
Typically, this takes 5-10 iterations before the values stabilize.
🔢 Real Example: Marcus's Iterative Calculation
Initial Data:
- AGI before SEHID: $50,000
- Annual premium paid: $6,000
- Annual SLCSP: $7,200
Iteration 1:
- MAGI: $50,000
- PTC: $3,600
- SEHID: $6,000 - $3,600 = $2,400
- New MAGI: $50,000 - $2,400 = $47,600
Iteration 2:
- MAGI: $47,600
- PTC: $3,900
- SEHID: $6,000 - $3,900 = $2,100
- New MAGI: $50,000 - $2,100 = $47,900
Iteration 3:
- MAGI: $47,900
- PTC: $3,820
- SEHID: $6,000 - $3,820 = $2,180
- New MAGI: $50,000 - $2,180 = $47,820
...continues until convergence at Iteration 8:
- Final MAGI: $47,847
- Final PTC: $3,153
- Final SEHID: $2,847
Who MUST Use the Iterative Method?
According to IRS Pub 974, the iterative method is required if ALL of these apply to you:
- ✅ You are self-employed (or have self-employment income)
- ✅ You purchased health insurance through the ACA Marketplace
- ✅ You received Advance Premium Tax Credit (APTC) during the year
- ✅ You're claiming the Self-Employed Health Insurance Deduction (SEHID)
If you meet all four criteria, you legally must use the iterative method when reconciling your Premium Tax Credit on Form 8962.
You can claim the Self-Employed Health Insurance Deduction if:
- You were self-employed and had a net profit for the year
- You paid health insurance premiums for yourself, spouse, or dependents
- The insurance plan is in your name (or your business's name)
- You were NOT eligible for employer-sponsored coverage (yours or spouse's)
Learn more: Self-Employed Health Insurance Deduction Guide
How to Calculate Using Publication 974
There are three ways to perform the Pub 974 iterative calculation:
Option 1: Manual Calculation (Not Recommended)
You can manually work through the iterative process using the worksheets in Publication 974. This requires:
- Form 8962 (Premium Tax Credit reconciliation)
- Pub 974 worksheets for iterative calculation
- Your Form 1095-A (from Healthcare.gov)
- Calculator and patience (you'll need 5-10 iterations)
Time required: 1-2 hours
Error risk: High (one math mistake throws off everything)
Option 2: Tax Professional (CPA or EA)
Hire a CPA or Enrolled Agent who understands Publication 974. Make sure to ask: "Do you use the iterative method for SEHID and PTC calculations?"
Cost: $300-$1,000+
Accuracy: Depends on the professional (many CPAs don't implement this correctly)
Option 3: FreelancerHealth Calculator (Recommended)
We built a Premium Tax Credit Calculator that automates the entire IRS Publication 974 iterative method.
- Runs the full IRS Pub 974 iterative calculation (5-10 iterations)
- Automatically looks up your SLCSP (Second Lowest Cost Silver Plan)
- Accounts for filing status, household size, and covered individuals
- Shows iteration-by-iteration breakdown (audit-ready documentation)
- Provides Form 8962 filing guidance
Time required: 2 minutes
Accuracy: Matches IRS test cases within $1
Common Publication 974 Mistakes to Avoid
Calculating SEHID first, then PTC, without iterating produces incorrect results. Cost: $500-$2,000
Your SLCSP must be specific to your age, location, and household. Using last year's SLCSP or a generic amount is wrong. Cost: $300-$800
You can only deduct the portion of premiums you paid out-of-pocket (after APTC). Deducting the full premium over-inflates your SEHID. Cost: IRS audit + penalties
Even if you think your income estimate was correct, you MUST file Form 8962 if you received any APTC. Failure to file = penalties + loss of future APTC eligibility. Cost: $1,000+ penalties
Publication 974 Key Sections
If you're reading Pub 974 yourself, these are the most important sections:
- Part I: Premium Tax Credit overview and eligibility
- Part II: How to calculate the Premium Tax Credit
- Part III (Critical!): Alternative calculation for self-employed with SEHID (the iterative method)
- Part IV: Claiming excess APTC (repayment caps)
- Worksheet 1-1: Premium assistance credit calculation
- Worksheet 2-1: Self-employed health insurance deduction calculation
2026 Updates to Publication 974
The 2026 version of Pub 974 includes several important changes:
1. Return of the 400% FPL Income Cap
Enhanced ACA subsidies expired December 31, 2025. Starting January 1, 2026:
- Income above 400% Federal Poverty Level (FPL) = NO Premium Tax Credit
- No more subsidies for middle-income freelancers earning $60,000+
2025 Federal Poverty Level Guidelines
- 1 person: $15,060 → 400% = $60,240
- 2 people: $20,440 → 400% = $81,760
- 4 people: $31,200 → 400% = $124,800
2. Repayment Caps Return
If you received too much APTC, repayment caps now apply:
- Under 200% FPL: $350 (single) / $700 (married)
- 200-300% FPL: $900 (single) / $1,800 (married)
- 300-400% FPL: $1,500 (single) / $3,000 (married)
- Over 400% FPL: NO CAP (you owe it all back)
3. Updated Federal Poverty Levels
FPL amounts are adjusted annually. Make sure to use the 2025 FPL guidelines when filing 2025 taxes.
Calculate Using the Pub 974 Method
Stop guessing. Use our calculator to run the official IRS iterative calculation and see your real numbers.
Calculate My PTC & SEHID →Frequently Asked Questions
Do I have to use Publication 974 if I'm self-employed?
Yes. If you received APTC and are claiming SEHID, the IRS requires you to use the iterative method described in Pub 974. Most tax software doesn't do this automatically.
Can I use TurboTax for this?
TurboTax will file your Form 8962, but it typically does NOT run the full iterative calculation. Many users report owing APTC repayments because TurboTax over-calculated their SEHID.
What if I already filed without using the iterative method?
If you believe you overpaid taxes, consult a tax professional about filing an amended return (Form 1040-X). You have 3 years from the original filing deadline to amend.
How long does the iterative calculation take?
Manually: 1-2 hours. With our calculator: 2 minutes. The IRS doesn't require you to show your work—just use the correct final numbers on Form 8962.
Where can I download Publication 974?
Download the latest version directly from the IRS: IRS Publication 974 (PDF)
The Bottom Line
IRS Publication 974 isn't optional reading for self-employed people with Marketplace insurance. It's the official guide to calculating your Premium Tax Credit correctly—and most importantly, it explains the iterative method that solves the SEHID/PTC circular dependency.
Ignoring Pub 974 costs freelancers thousands of dollars per year in:
- Overpaid taxes (incorrect SEHID)
- APTC repayments (incorrect PTC reconciliation)
- IRS penalties (failing to file Form 8962)
The good news? You don't have to read 50+ pages of tax code or do the math by hand. Use a calculator that implements Pub 974 correctly, and you'll get accurate results in minutes.
- Download Publication 974 and read Part III
- Gather your Form 1095-A from Healthcare.gov
- Run the iterative calculation to see your real numbers
- File Form 8962 using the correct SEHID and PTC values