Beautiful Ozarks, great people, and great sports teams all are reasons to love living in Missouri. Another more reason is Missouri’s tax credits. Unlike many states whose tax credits are only applicable to certain taxpayers, Missouri has tax credits that can be used by a much broader population.
One of the Missouri tax credits, which is most beneficial to a large group of individuals is the Self-Employed Health Insurance (SHC) credit.[1] As the instructions on Form MO-SHC states “if you are a self-employed individual and were not able to deduct all of your health care premiums from your federal adjusted gross income, you may be eligible for a tax credit equal to the portion of your federal tax liability incurred due to the inclusion of your health care premiums in your federal adjusted gross income.”[2]
In other words, self-employed individuals who pay health insurance premiums but have a loss on their business may not be able to deduct these health insurance premiums on their federal tax return. These premiums would only be deductible as an itemized deduction which has deductibility limits. Missouri allows a portion of these health insurance premiums as a credit on the individual’s Missouri tax return.
Since the calculation is a little confusing, let’s look at an example. “RT” is a Missouri resident who has adjusted gross income (AGI) on her federal return of $65,000. RT’s spouse makes $75,000 at his job, which doesn’t provide health insurance. RT just started her own business so has a loss the first year of ($10,000). Both are 41 years old and they have two children. Health insurance costs RT $5,000 per year (assume RT doesn’t qualify for any subsidies), and RT has no other medical expenses. Since RT has a loss on her business and her medical expenses are under 10% of her AGI (itemized deduction floor), RT would not be able to deduct any of the health insurance premiums on her federal return.
Missouri would allow RT a tax credit on her Missouri tax return for 2016 (approximate):
Federal Taxable Income: $32,500
Amount RT paid for health insurance premiums: $5,000
Federal Taxable Income without health Insurance Premiums: $27,500
Federal Tax Liability RT Actually Paid: $3,950
Estimated Federal Tax Deducting Premiums (on $27,500): $3,200
Self Employed Health Insurance Credit on Missouri return: $750
So even though the federal government will not allow RT to take a deduction for the health insurance premiums paid for her family, Missouri allows a tax credit for the additional federal tax RT had to pay.
Please contact CPA WorldTax at taxinfo@cpaworldtaxllc.com or 888-512-4860 to see how Missouri tax credits affect you.
[1] http://dor.mo.gov/forms/MO-SHC.pdf [accessed 6/30/17] & http://www.moga.mo.gov/mostatutes/stathtml/14300001191.html [accessed 6/30/17].
[2] http://dor.mo.gov/forms/MO-SHC.pdf [accessed 6/29/17].