Cobra Payments

[S T]

Taxpayer was laid off and is receiving the benefit of the reduced Cobra insurance payments, so only paying 35% of her premiums.

Question: The reduced amount of premiums is still eligible as a medical insurance deduction? And, we do not acknowledge or report any amount relating to the reduction (65%) amount?

Sandy

[Koss]

COBRA Premiums

The amount actually paid out-of-pocket by the former employee should still be a deductible medical expense. It's a health insurance premium, it's not paid by the employer, and it's not paid with pre-tax dollars.

The 65% reduction is not taxable income, and does not have to be reported anywhere on the tax return, unless the taxpayer's MAGI exceeds $125K...

If this scenario is applicable to your client, or if you're just curious, see Worksheet F on page 24 of IRS Publication 502.

BMK

[S T]

Insurance

Thank you Burton, that is what I believed, that the premiums that the taxpayer pays (even though reduced) would still qualify as a medical deduction. And that the taxpayer would not be able to deduct any portion of the subsidy.

The Cobra HR person at the ex-employer stated that the taxpayer could not claim any of the medical or the taxpayer misunderstood.

Sandy

[Jesse]

Sandy, I have a client receiving the COBRA subsidy which was told the same, he can not deduct the 35%.

I'm wondering if they might have it mixed up with not being eligible for the Health Coverage Tax Credit per Publication 502:

An individual who receives COBRA premium assistance (discussed earlier) for a month is disqualified from receiving the HCTC for that month.