Self-employed health insurance deduction

[Roland Slugg]

Facts: Client, retired State of California worker receiving retirement benefits from CalPERS. There is about $165 deducted from his retirement check (pre-tax) each month ($1,985/year). Client is also self-employed as a consultant ... no employees. His consulting business had a $5k profit on Schedule C for 2010. The CalPERS deduction is for a Blue Shield plan.

Question: Can the $1,985 client pays via deductions from his CalPERS retirement benefit be deducted as self-employed health insurance on F-1040, Line 29?

Added comments: (1) CalPERS is not the client's former employer, per se. Rather, it is the pension payout arm of the State of California. Accordingly, the insurance is not, technically, being provided by client's former employer. (I'm sure some would laugh at this fine distinction, and I wouldn't blame them.) (2) For the SEHI deduction to be valid the policy must be established in the business name or in the name of its owner. I would speculate that the only thing in the taxpayer's name with regard to this policy is his name on an ID card. Surely the plan itself is between Blue Shield and CalPERS, and my client is just one of many thousands of covered insureds.

So what say you? Deductible, or not? As always, authoritative cites would be appreciated.

[BHoffman]

I'm too tired to look up the cite or the Pub or even look it up in TTB.

I would deduct that on Sch A and not as SEHI for the reason you gave.

[taxxcpa]

Another fine distinction

If you are a retired employee, you are no longer an employee. So it could be argued that he does not have an employer -subsidized plan. (You have to have an employer to be an employee)

[BHoffman]

I think the plan has to be in the name of the Sch C business or in the name of the sole proprietor.

[Burke]

Agree. He cannot deduct this type of health insurance as SEHI on the 1040.

[taxea]

My understanding of the law is that if your retired "first responder" client is paying his health insurance through deduction from his PERS retirement he is entitled to a $3000 deduction on that premium.

Now since the client is self-employed he is entitled to take the premium deduction expense on his Sch C if he has a net profit. (If he has a net loss, it goes on Sch A)

I enter mine on Sch A, adjust for the $3000 credit and then adjust to put the balance onto Sch C.

[Snaggletooth]

Deduct It

Sluggo, I'm hearing that software companies (with the blessing of the IRS) are now taking the medicare deducted from social security and offering it as a deductible option for SEHI. Obviously, this hardly qualifies as "being established in the name of the business", and from a practical standpoint, almost no medical insurance is established in the name of the business. From an application standpoint (and certain not a regulatory standpoint), the new rule is "anything goes." (with apologies to Cole Porter)

Just so this doesn't take wings that it shouldn't, I can't remember the source of this information, so it is hardly reliable.

But it is worth offering up as a post herein. Who on earth is going to establish their own insurance plan when they are having one provided by the State of California? If you are a small business with less than 12 potential participants, it is virtually impossible to get coverage "in the name of the business." The reality of the situation is that no small proprietor these days is even providing insurance to its employees or they will go broke. So the owner buys insurance for himself if he can find it. For any who actually DO provide group coverage for themselves and their company, the entire amount of this expense would be a deduction on Schedule C under "Employee Benefit Plans" and not "Insurance."

[Davc]

The only time insurance for a SP goes on C is if the spouse is an employee and her insurance covers the SP as well. Even this year the SEHI is an adjustment on schedule SE and the 1040, not Schedule C.

[Burke]

Now since the client is self-employed he is entitled to take the premium deduction expense on his Sch C if he has a net profit. (If he has a net loss, it goes on Sch A)

A sole proprietor with no employees cannot take health insurance on the Sche C as a deduction.

[FEDUKE404]

He is doing WHAT?

It looks as if way too many topics are being bantered here.

My approach would be that the insurance is NOT being offered by his "employer" (he is retired, correct?) and the premiums he is paying would qualify, with the usual dollar limitation restrictions, for the SEHI deduction.

Of course, "upon further review" of the original post - if the premiums being discussed are pre-tax (how the heck do you do that with retirement benefits???) then why are we even having this conversation in the first place?

As for the "plan being in the name of the business" issue - I thought that war had long ago been fought on these boards? A self-employed Schedule C person is the business!

FE