Se Ins Deductibility

[veritas]

Here's my take

on the subsidy credit. It originates from the IRS not the employer so there is no subsidy from the employer.

Of course I often think the IRS is my employer

[FEDUKE404]

Government double-talk

I think, excluding the unique COBRA subsidy scenario, the devil is in the details:

Paragraph (1) shall not apply to any taxpayer for any calendar month for which the taxpayer is eligible to participate in any subsidized health plan maintained by any employer of the taxpayer or of the spouse of, or any dependent, or individual described in subparagraph (D) of paragraph (1) with respect to, the taxpayer. The preceding sentence shall be applied separately with respect to--

Common sense, but not necessarily IRS wisdom, would seem to indicate a person who no longer is employed therefore has no employer.

The IRS wiggle room may be the use of COBRA is, in fact, merely continuing "the employer's" coverage even though the former employee is paying all (and more) of the costs.

My guess is the same person who wrote these guidelines also had something to do with the much-discussed "insurance must be in the name of the company" issues for Schedule C for the self-employed and the related Medicare B/D coverage issues.

FE

[veritas]

I think

I have a better than 50% chance of prevailing.

So I'm taking the deduction.

[Mike Mac]

Retired Federal workers

This reminds me of posts that pop up here every year or two debating if health insurance costs can be taken as an adjustment to income in the case of self-employed, now retired former federal employees (when the spouse is also retired and is not covered by another health insurance policy). The health insurance premiums are still subsidized by the federal government but the feds certainly are no longer the employer.

The answer always has been, no you can not use it on line 29.

[FEDUKE404]

Not really correct...

This reminds me of posts that pop up here every year or two debating if health insurance costs can be taken as an adjustment to income in the case of self-employed, now retired former federal employees (when the spouse is also retired and is not covered by another health insurance policy). The health insurance premiums are still subsidized by the federal government but the feds certainly are no longer the employer.

The answer always has been, no you can not use it on line 29.

With all due respect....you are mistaken re Sch C and certain qualifying insurance costs (to include Medicare B premiums for the taxpayer) that can be claimed as a adjustment to income if certain conditions are met.

(There is some fine print for disallowing insurance premiums which are included/paid via non-taxable retirement income, however, if that perhaps covers your "subsidized" comments about federal workers.)


Self-Employed Health Insurance Deduction

You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. Effective March 30, 2010, the insurance can also cover your child who was under age 27 at the end of 2010, even if the child was not your dependent. A child includes your son, daughter, stepchild, adopted child, or foster child. A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.

One of the following statements must be true.

You were self-employed and had a net profit for the year 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.

You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc., box 14, code A.

You used one of the optional methods to figure your net earnings from self-employment on Schedule SE.

You were a shareholder owning more than 2% of the outstanding stock of an S corporation with wages for the year from the corporation reported on Form W-2, Wage and Tax Statement.


The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business.

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

For partners, a 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, a 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.


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.

Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction.

Take the deduction on Form 1040, line 29.


SOURCE: http://www.irs.gov/publications/p535/ch06.html

FE

[Mike Mac]

Instructions for Line 29

FE, thanks for the response.

The 1040 Instructions for Line 29 state: "But if you were also eligible to participate in any subsidized health plan maintained by your or your spouse's employer for any month in 2010, amounts paid for health insurance coverage for that month cannot be used to figure the deduction."

I like your interpretation better than what we've seen as almost all others when this question has come up on this board (and others). But the consensus has always been that the fact that the former employer (federal government) is still subsidizing the cost of the health insurance premiums trump the fact that the taxpayer really is not a federal employee anymore. Maybe it is because federal workers can retire relatively young and it is rare for a non-federal worker to be able to still be able be part of the former employer's health insurance plan and even more rare that the former employer still subsidized the premiums.

[FEDUKE404]

Employee vs retiree coverage issues

FE, thanks for the response.

The 1040 Instructions for Line 29 state: "But if you were also eligible to participate in any subsidized health plan maintained by your or your spouse's employer for any month in 2010, amounts paid for health insurance coverage for that month cannot be used to figure the deduction."

I like your interpretation better than what we've seen as almost all others when this question has come up on this board (and others). But the consensus has always been that the fact that the former employer (federal government) is still subsidizing the cost of the health insurance premiums trump the fact that the taxpayer really is not a federal employee anymore. Maybe it is because federal workers can retire relatively young and it is rare for a non-federal worker to be able to still be able be part of the former employer's health insurance plan and even more rare that the former employer still subsidized the premiums.

I can't take much credit for what was posted, as it was pretty much a verbatim excerpt from the (updated) federal publication. I did provide some relevant highlighting.

Your noted restriction on the line 29 qualifications is an issue that has been around forever. With my limited knowledge (bring in the attorneys!!) I do feel if you read it carefully there is a restriction for a health plan maintained by an employer. But a retiree has no employer who offers health insurance, so that point should be moot.

The gray zone, at least in the opinion of some, occurs when continuing insurance is provided to ( and paid by!! ) a retiree by a FORMER (but not current for either spouse) employer. IF the retiree pays for that coverage (including funds withheld from retirement) I feel such medical insurance does qualify if all other restrictions are met.

Some folks here have gone tilting at windmills getting confused over the difference between Medicare A and B costs, and even trying to claim the Medicare costs paid ( = premiums withheld monthly ) by the non-Schedule C spouse as qualifying for the Schedule C as an adjustment that shows up on line 29 of Form 1040. Since the actual filer (owner) of the Schedule C did not make those payments, they are not available for the self-employment health insurance adjustment. (Well, it's pretty clear to me what the rules state.... ) It should also be noted that the inclusion of Medicare B (and D) premiums for the owner of the Schedule C as allowable is a recent event. I've quietly felt that approach was within the rules all along, but now the IRS has pretty much explained it in a manner that should be clear to even the most recalcitrant doubters out there.

This discussion also is not related to what, if any, medical insurance expenses could actually be claimed within the Schedule C. That is a different topic entirely....

FE