Self employed Health Insurance

[Earl]

Have a retired safety officer who is eligible to elect to exclude his health insurance premiums from the retirement income shown on return and non-taxable.

He also is self-employed.

Can he elect to not have the health insurance deducted from his retirement and instead use it to reduce business income and self-employment tax which would provide the greater benefit.

[Earl]

Pso

Bumping up to see if anyone will give answer on selfemployed health insurance question.

[Possi]

Be careful...

I have one retired law enforcement officer whose health insurance deduction of $3k is taken when I reflect it, but another who retired later, and her health insurance deduction was reflected on the 1099. Not noted specifically as health insurance on the 1099, but the taxable amount was $3000 less than taxable, and it was for the health insurance adjustment after investigating.

I do not know about using it for self-employed health insurance adjustment. I would not have thought to ask. I would have taken the adjustment for SEHInsurance and carried on.

Anyone??

[BHoffman]

Have a retired safety officer who is eligible to elect to exclude his health insurance premiums from the retirement income shown on return and non-taxable.

He also is self-employed.

Can he elect to not have the health insurance deducted from his retirement and instead use it to reduce business income and self-employment tax which would provide the greater benefit.

Hi Earl - if the health insurance policy is not in your client's name, then I would suppose that it is not eligible to be treated as SEHI. I'm not sure about that.

Perhaps others will comment.

[Gene V]

This was from my E-Mail

Hi Earl - if the health insurance policy is not in your client's name, then I would suppose that it is not eligible to be treated as SEHI. I'm not sure about that.

Perhaps others will comment.

Issue Number: Tax Tip 2011-51
Inside This Issue



Health Insurance Tax Breaks for the Self-Employed

Here is some information from the IRS about a special tax deduction for the self-employed. You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are one of the following:
A self-employed individual with a net profit reported on Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming.
A partner with net earnings from self-employment reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc., box 14, code A.
A shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2, Wage and Tax Statement.

The insurance plan must be established under your business.
For self-employed individuals filing a Schedule C, C-EZ, or F, the policy can be either in the name of the business or in the name of the individual
.
For partners, the policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.

For more-than-2% shareholders, the policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.
For more information see IRS Publication 535, Business Expenses, available at http://www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).

[Burke]

But the health insurance policy is not established in the name of the individual. And it certainly is not in the name of the self-employment business he has. He may be the insured, but isn't the policy under a subsidized group plan established by the (former) public employer? So, I do not think it qualifies for either SEHI or SE tax deduction.

[taxea]

here's how I do it...the 3000k deduction applies only if the insurance is paid through the retirement check. When this is the case I take the deduction on Sch A and the balance paid by the t/p on Sch C.
I don't think the IRS would approve of taking it all on Sch C unless you make the deduction there also.

[Earl]

Pub 535

Not sure how the previous reply applies to the original question.

According to Pub 535 under instructions for completing Worksheet 6-A it says when figuring the amount to enter on Line 1 of 6-A do not include the following:

- any amounts paid from retirement plan distributions that were not taxable because you are a retired public safety officer.

I take from this that amounts paid from retirement plan distributions that were taxable because you are NOT a retired plubllic safety officer would be able to be used for the deduction. Or to take it further that health insurance premiums paid through your retirement are eligible for SEHI.

My question was that since it is an election by the PSO if he wants the amount deducted from his retirement or not would it be all right to elect to not deduct the health premiums from his retirement and instead use the premiums as SEHI.

[Burke]

My question was that since it is an election by the PSO if he wants the amount deducted from his retirement or not would it be all right to elect to not deduct the health premiums from his retirement and instead use the premiums as SEHI.

I see what you are getting at, but I do not believe the deduct-or-not-to-deduct-premiums-from-the-retirement-benefit question would apply to the deduction for SEHI. These are two different issues. It's the "established in the name of the individual" part that leads me to believe that it cannot be. Now if the coverage is NOT part of a subsidized group plan established by his former employer (or state or local govt or whoever did it) under which he is merely one of the insured persons in the plan, then you may have a case. If he chooses not to deduct the prems from his retirement benefit on a pre-tax basis, then that would free him up to deduct them on Sche A, however. They would never be deductible on a Sche C, IMO.