SE Insurance deduction

[jimenright]

There have been several previous posts regarding the efficacy of filing amended returns to claim the self-employed health insurance deduction for medicare part B premiums. Previously, this deduction was explicitly disallowed by a note in Publication 535. Publication 535 (2010 version pg 18) now actually suggests that an amendment be filed if the deduction was not taken in prior years (see attachment).

In light of this, I have filed amended returns for my own tax return for 2009, 2008 & 2007. I took a deduction for Medicare Part B, Medicare Part D and Medicare Supplemental Insurance for myself and my spouse. We do not file a Schedule A so this will result in a substantial refund. I have just received a refund check for 2009, the first of the three filed.

I am a 74 year old retired person and an EA who prepares about 60 to 70 tax returns during the tax season. I have no clients who are able to make a similar claim.

[rjholmes]

Where are you reading "in prior years"? Everything I find so far shows for tax years beginning in 2010.

[Bees Knees]

Where are you reading "in prior years"? Everything I find so far shows for tax years beginning in 2010.

I see nothing that says it begins in 2010. On the contrary, IRS Pub 535 says you can go back and amend prior years for it. From page 18:

Medicare premiums you voluntarily pay to obtain insurance that is similar to qualifying private health insurance can be used to figure the deduction. If you previously filed a return without using Medicare premiums to figure the deduction, you can file an amended return to refigure the deduction. For more information, see Form 1040X, Amended U.S. Individual Income Tax Return.

[dyne]

It is my understanding that the medicare health insurance reduces the SELF-EMPLOYMENT tax for ONE year only: 2010. For prior and subsequent years it is NOT a deduction in calculating the SE tax. It IS a tax benefit ONLY in reducing the federal income tax for years OTHER than 2010. The Medicare premiums CAN be used to file amended returns for OTHER than the year 2010 but this often results in only a small tax benefit for those years. I learned this when I prepared an amended tax return for the year 2009 and the tax benefit was so small it was less than the fee I planned to charge the client. Look up: medicare premiums deduction in arriving at SE tax in GOOGLE.

[appelman]

If I understand Jimenright correctly...

he is deducting both his own Medicare B & D payments and those of his spouse. Based on previous discussions in this forum, this seems a bit iffy unless his spouse is also self-employed. In answer to Dyne, the benefit obviously depends on your tax bracket.

[Burke]

I agree. Unless the spouse is also self-employed, her (his) medicare prems would not be used in the SEHI deduction since the spouse's premiums are separately paid and under a separate "plan."

[FEDUKE404]

Agreed

I agree. Unless the spouse is also self-employed, her (his) medicare prems would not be used in the SEHI deduction since the spouse's premiums are separately paid and under a separate "plan."

At least 1000% !!!!

The person on the Sch C gets the SEHI deduction. Anything that the spouse "paid" is irrelevant. This is a different issue from the Sch C person having coverage, such as a family plan, that also includes the spouse in the same coverage.

And...I hope we have already beaten the dead horse "established in the name of the business...." sufficiently.

Of course, if the spouse has her/his own Sch C.....then you get to perform a second set of calculations and relevant limitations.

FE

[jimenright]

Read Pub 535 2010 version pg 18 thoroughly.

The Pub says SE Health Insurance deduction is for Schedule C filer, spouse and dependents. It requires a net profit from SE. Medicare voluntary payments are included for Schedule C filers. The spouse does not have to file a schedule C. It actually suggests an amended return if not claimed in a prior year.

This is for the adjustment to income deduction on the 1040, not the 2010 only deduction on Schedule SE.

Again: read 2010 PUB 535, pg 18 Under "Self Employed Health Insurance Deduction."

In the "2009" and earlier versions of Pub 535. Medicare payments were explicitly disallowed by a boldface note in the publication. In the "2010" version the deduction for Medicare payments for the schedule C filer is explicitly allowed and there is a suggestion to file an amended return if the deduction was not taken in prior years.

Again: I have filed amended returns to claim the deduction and it has been accepted by the IRS. In my case the refund was substantial.

[Bees Knees]

This is a case where everyone is talking about something different.

1) Original poster was referring to the Self-employed health insurance deduction on the front of the 1040. IRS says you can go back and amend prior returns for Medicare Part B as qualifying for the deduction.

2) For 2010 only, the Self-employed health insurance deduction is also a deduction against SE tax.

3) If a sole proprietor hires a spouse as an employee, the sole proprietor can deduct health insurance provided to the spouse plus family benefits as a deduction on Schedule C for both income and SE tax purposes.

Please note that these are three SEPARATE issues. The original poster was only referring to issue number 1 above, not number 2 or 3.

[jimenright]

I agree except for answer 3.

You do not have to hire your spouse as an employee. Read the pub. I will now shut up on this issue.

[FEDUKE404]

Trying to claim what a spouse paid on Sch C

The Pub says SE Health Insurance deduction is for Schedule C filer, spouse and dependents. It requires a net profit from SE. Medicare voluntary payments are included for Schedule C filers. The spouse does not have to file a schedule C. It actually suggests an amended return if not claimed in a prior year.

This is for the adjustment to income deduction on the 1040, not the 2010 only deduction on Schedule SE.

Again: read 2010 PUB 535, pg 18 Under "Self Employed Health Insurance Deduction."

In the "2009" and earlier versions of Pub 535. Medicare payments were explicitly disallowed by a boldface note in the publication. In the "2010" version the deduction for Medicare payments for the Schedule C filer is explicitly allowed and there is a suggestion to file an amended return if the deduction was not taken in prior years.

Again: I have filed amended returns to claim the deduction and it has been accepted by the IRS. In my case the refund was substantial.

With greatest apologies, I simply do NOT read Pub 535 the same way you are reading it.....

"One of the following statements must be true: You were self-employed and had a net profit for the year reported on Schedule C.

For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be in the name of the business or in the name of the individual."

Nowhere do I see "you both" or "names" or "individuals."

I am always quite willing to learn new tax concepts, but at this point I do not see any way that a non-working spouse who pays his/her own separate Medicare premiums et al could ever be considered for the SEHI for the other spouse who actually operates the business via Schedule C.

Perhaps the confusing point is between what policy "coverage" (but not policy ownership) will now allow versus "who pays what." Toss in some poorly written verbiage of "you" also to further cloud up the picture.

Bottom line: A person who pays Medicare premiums is "buying" coverage ONLY for himself/herself. A second person (spouse or otherwise) simply can never be covered by those premiums. The insured bears/pays the expenses and reaps the benefits.

In any case, please show me something more concrete that supports your own position where a Schedule C filer can deduct the Medicare (or any other!!!) insurance premiums that the spouse actually paid. The mere fact that you yourself have filed such amended returns and the IRS "accepted" them should not be deemed as any such proof.

FE

[jimenright]

The first sentence says:

"You may be able to deduct premiums paid to medical and dental insurance ... for yourself, your spouse and your dependents ..."

We are talking about a deduction on the 1040 for a joint return. Not a schedule C deduction.

In the same way as the deduction on the schedule A, it is for yourself, spouse and dependents.

A rationale for this deduction may be that an employee getting medical insurance for himself and his family from his employer does not pay taxes on the premiums. In a family, it makes no difference in whose name the insurance is paid.

If one were to use your definition, any dependent would have to file a schedule C in order to get the deduction.

There is nothing in the quote I gave from the publication that limits the deduction to the schedule C filer and excludes the spouse.

[FEDUKE404]

WHAT deduction?

"You may be able to deduct premiums paid to medical and dental insurance ... for yourself, your spouse and your dependents ..."

We are talking about a deduction on the 1040 for a joint return. Not a schedule C deduction. You previously referenced page 18 of IRS Publication 535. Please note the last sentence (right column) of the section "Self-Employed Health Insurance Deduction."

In the same way as the deduction on the schedule A, it is for yourself, spouse and dependents.

A rationale for this deduction may be that an employee getting medical insurance for himself and his family from his employer does not pay taxes on the premiums. In a family, it makes no difference in whose name the insurance is paid.

If one were to use your definition, any dependent would have to file a schedule C in order to get the deduction.

There is nothing in the quote I gave from the publication that limits the deduction to the schedule C filer and excludes the spouse.

Who ever was talking about a Schedule C deduction??

No, we are talking about the self-employed health insurance deduction shown on line 29 of Form 1040 as an adjustment to income. The rules for claiming such are, and always have been, very specific.

While the tax return may well be "joint" the applicable Schedule C is certainly not!!!

This has nothing to do with what a person/couple may claim as an itemized medical deduction on Schedule A. Do I perhaps need to repeat that??

You also should note, quite carefully, that if the Schedule C owner can/could be/is covered via an employer's medical insurance plan, no SEHI adjustment to income can be taken while such a condition exists. PERIOD!

Your comment about a dependent having to file a Sch C for someone (parent?) to take a medical insurance deduction is simply ludicrous.

I feel as if I'm in a parallel universe or something here.....but I firmly stand by my prior comments.

And, as an example (personal in nature): My Sch C business has been operational for many years. For the earlier years my family was covered by medical insurance purchased through/provided by my employer. I never took the SEHI because .... I could not! Now time has advanced, and I have no "employer" therefore I purchase similar insurance on my own. I deduct, within the IRS limitations provided for SEHI, those premiums because MY policy covers me, my spouse, and my (now) college-age offspring. My spouse currently pays Medicare premiums. I do not. I do not include my spouse's Medicare premiums in the SEHI calculations because......well, the rules say that I cannot. (Also, I did not pay those premiums in the first place.) But rest assured that when I begin to pay my own Medicare premiums that such premiums will become part of the SEHI calculations for my Schedule C.

I'm now definitely outta here. Gonna try to find a cooler place for the remainder of the evening.


FE

[appelman]

For what it may be worth...

Here is an IRS take on the subject:

"Your Question Was:
I understand that the IRS now permits Medicare B premiums to be included in the above-the-line deduction for self-employed health insurance. My wife and I both have Medicare B coverage. My wife s coverage is derived from me -- her Medicare identification number is my SSN with a suffix B. May I include both of our Medicare B premiums in the above-the-line deduction for my business, or only my own? Thank you for your assistance.

The Answer To Your Question Is:
The insurance plan must be established under your business or name if you are a sole proprietor. Your wife's Medicare B premiums are not paid under your name or business, so if your wife did not have any self-employment income, her Medicare B premiums cannot be included on your 2010 federal income tax return as part of your adjustment for the self-employed health insurance deduction. Your Medicare B premiums would qualify for the self-employed health insurance deduction."

Incidentally, I don't believe it is true that the above-the-line deduction of Medicare B was explicitly excluded in 2009 AND PRIOR YEARS. I believe 2009 was the first year it was mentioned explicitly in the Pubs. One can only conjecture as to what brought about the abrupt about-face.

[Bees Knees]

The Pub says SE Health Insurance deduction is for Schedule C filer, spouse and dependents. It requires a net profit from SE. Medicare voluntary payments are included for Schedule C filers.

Yes but there is a difference between health insurance that covers your spouse and dependents, verses health insurance PAID by your spouse and dependents. Pub 535 only talks about insurance the sole proprietor paid on behalf of himself/herself, the spouse, and the dependents.

When Pub 535 mentions Medicare Part B, it only refers to the Medicare paid by the self-employed individual. Nothing is said about the Medicare paid by the spouse of a self-employed individual.

BTW, IRS sending you a refund does not mean they agree with your tax theory. It merely indicates they processed your claim for refund and it appears on the surface to be correct. They still have the right to audit you and change their mind after investigating all of the facts.