Updated November 5, 2026. Quick answer: The Step 3 and Step 5 Worksheets in Publication 974 (2025) belong to the iterative calculation for a self-employed person who has both a premium tax credit and a self-employed health insurance deduction on the same premiums. Step 3 gives a first deduction, Step 4 refigures the credit on another Form 8962, Step 5 refigures the deduction, and Step 6 repeats Steps 4 and 5 until both numbers move by less than $1.00.
What the iteration is for
The deduction lowers income, which raises the credit, which lowers the premiums left to deduct, and so on. The publication’s answer is a loop; Worksheets W and X, explained on the Worksheet W page and the Worksheet X page, supply the limits that the two worksheets here use. The ordinary deduction without a credit is on the Self-Employed Health Insurance Deduction Worksheet page.
Step 1 and Step 2 before the worksheets
Step 2 is a Form 8962 filled in only through line 24 and not attached: “Complete this Form 8962 only through line 24. Do not attach this Form 8962 to your tax return.” If you cannot take the credit, “If you are not eligible to take the PTC, stop here. Do not use this method.”
Step 3 Worksheet, lines 1 to 9
“Enter amounts in dollars and cents. Do not round to whole dollars.”
| Line | What it asks |
|---|---|
| 1 | “Enter the amount from Worksheet W, line 1” |
| 2 | “Enter the total PTC (Form 8962, line 24) you figured in Step 2, earlier” |
| 3 | “Enter the number of months in 2025 for which specified premiums were paid” |
| 4 | “Enter the number of months someone in your coverage family was enrolled in the qualified health plan” |
| 5 | “Divide line 3 by line 4” |
| 6 | “Multiply line 5 by line 2” |
| 7 | “Subtract line 6 from line 1” |
| 8 | “Enter the amount from Worksheet X, line 30. If you did not complete Worksheet X, enter the amount from Worksheet W, line 16” |
| 9 | “Enter the smaller of line 7 or line 8. Then, go to Step 4 next” |
A caution under line 1 changes the route: “If the amounts on lines 12 through 23, column (e), of your Step 2 Form 8962 are not the same for each month and you had specified premiums for less than 12 months, skip lines 2 through 5 below and enter on line 6 the total of those column (e) amounts for the months you paid specified premiums.” And a note on line 3: “Self-employment for part of a month counts as a full month of self-employment.”
Step 4 and the Step 5 Worksheet, lines 1 to 7
Step 4 is a second Form 8962 “Complete this Form 8962 through line 29.” It uses “the total of the Step 3 Worksheet, line 9, and Worksheet W, line 14, as your self-employed health insurance deduction”. Step 5 then refigures the deduction:
| Line | What it asks |
|---|---|
| 1 | “Enter the amount from line 1 of the Step 3 Worksheet” |
| 2 | “Enter the total PTC (Form 8962, line 24) you figured in Step 4, earlier” |
| 3 | “Enter the amount from line 5 of the Step 3 Worksheet” |
| 4 | “Multiply line 3 by line 2” |
| 5 | “Subtract line 4 from line 1” |
| 6 | “Enter the amount from Worksheet X, line 30. If you did not complete Worksheet X, enter the amount from Worksheet W, line 16” |
| 7 | “Enter the smaller of line 5 or line 6. Then, go to Step 6 next” |
The caution under line 1 of the Step 5 Worksheet mirrors Step 3: if you skipped lines 2 to 5 of the Step 3 Worksheet, skip lines 2 and 3 and enter on line 4 the total of the column (e) amounts from your Step 4 Form 8962 for the months you paid specified premiums.
Step 6: repeat until it settles
Step 6 asks three questions: “Is the change in the self-employed health insurance deduction from Step 3 to Step 5 less than $1.00?” and “Is the change in the total PTC from Step 2 to Step 4 less than $1.00?” If both are yes, “You can claim a PTC for the amount you figured in Step 4.” The deduction is “the total of the Step 5 Worksheet, line 7, and Worksheet W, line 14. Enter this total on line 17 of Schedule 1 (Form 1040).” The line itself is on the Schedule 1 line 17 page.
If either answer is no, “Repeat Step 4 and Step 5 (using amounts determined in the immediately preceding step) until changes in both the self-employed health insurance deduction and the total PTC between steps are less than $1.00.” If it never settles, “do not use the Iterative Calculation Method. Instead, use the Simplified Calculation Method”.
The Simplified Calculation Method’s Step 3 Worksheet
The simplified method has its own Step 3 Worksheet with the same nine lines plus two: “Enter the amount from Worksheet W, line 14” on line 10, and on line 11 “Add lines 9 and 10. Use this amount as your self-employed health insurance deduction in Step 4 next. Also, enter this amount on line 17 of Schedule 1 (Form 1040)”. It is run once, so there is no Step 5 Worksheet and no Step 6 loop.
More than one trade or business
With more than one business the publication says “you must complete lines 1 through 7 separately for each trade or business.” Lines 8 and 9 are then done once for all of them, and the Step 5 Worksheet follows the same split with lines 1 through 5 done separately.
Example with invented numbers
Illustration, not an IRS example. The premiums, credits and limits are made up and the arithmetic is computed. One trip round the loop:
Step 3 Worksheet:
| Line | Entry | Value |
|---|---|---|
| 1 | Premiums from Worksheet W, line 1 (invented) | $6,000.00 |
| 2 | Total PTC from the Step 2 Form 8962, line 24 (invented) | $3,000.00 |
| 3 | Months specified premiums were paid (invented) | 12 |
| 4 | Months someone in the coverage family was enrolled (invented) | 12 |
| 5 | Line 3 divided by line 4 (computed) | 1 |
| 6 | Line 5 times line 2 (computed) | $3,000.00 |
| 7 | Line 1 minus line 6 (computed) | $3,000.00 |
| 8 | Worksheet X line 30 or Worksheet W line 16 (invented) | $5,200.00 |
| 9 | Smaller of line 7 or line 8 (computed) | $3,000.00 |
The Step 4 Form 8962 is then refigured with a $3,000.00 deduction and, in this made-up case, gives a total PTC of $3,350.00. There is no Worksheet W line 14 amount in this made-up case. Step 5 Worksheet:
| Line | Entry | Value |
|---|---|---|
| 1 | Line 1 of the Step 3 Worksheet | $6,000.00 |
| 2 | Total PTC from the Step 4 Form 8962, line 24 (invented) | $3,350.00 |
| 3 | Line 5 of the Step 3 Worksheet | 1 |
| 4 | Line 3 times line 2 (computed) | $3,350.00 |
| 5 | Line 1 minus line 4 (computed) | $2,650.00 |
| 6 | Worksheet X line 30 or Worksheet W line 16 (invented) | $5,200.00 |
| 7 | Smaller of line 5 or line 6 (computed) | $2,650.00 |
The deduction moved from $3,000.00 to $2,650.00, a change of $350.00 (computed), and the credit moved from $3,000.00 to $3,350.00, also $350.00. Both are $1.00 or more, so Step 6 sends this made-up filer round again with Step 4 using the new deduction.
Edition
This page reads Publication 974 (2025), Premium Tax Credit (PTC), the file irs.gov served on 2026-11-05. Worksheet letters and line numbers belong to that edition, so check the label printed on the worksheet in your own copy before you follow a line reference.
Common mistakes
- Rounding to whole dollars. The worksheets are in dollars and cents, and the $1.00 test in Step 6 needs the cents.
- Stopping after one pass. Step 6 requires both the deduction and the credit to change by less than $1.00 between steps.
- Attaching the Step 2 or Step 4 Form 8962 that is only a working copy. Only the Form 8962 from the final pass is attached.
- Forgetting the Worksheet W line 14 amount. It is added to the Step 5 result before the total goes on Schedule 1, line 17.
Related: Worksheet W, Schedule 1 line 17, and Publication 974.
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Answer againSources
- Publication 974 (2025), Premium Tax Credit (PTC): https://www.irs.gov/pub/irs-pdf/p974.pdf
- IRS, About Publication 974, Premium Tax Credit (PTC): https://www.irs.gov/forms-pubs/about-publication-974
Read from the IRS documents linked above on November 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.