Medicare Premiums Deductible as SEHI

[DaveinTexas]

Hello all, It's been a long discussion and finally the IRS has decided to allow the deduction of Medicare premiums by self employed taxpayers! See article below. The article also states that S Corp shareholders (more than 2%) can take advantage of this provision as well.

Have a great week!

Article: http://www.aicpa.org/InterestAreas/T...PA+Tax+Feed%29

[John of PA]

Great news, and I just learned at a seminar that the spouse's medicare premium can also be deducted as SE health insurance.

[FEDUKE404]

Spouse's Medicare on husband's SEHI adjustment ?

Great news, and I just learned at a seminar that the spouse's medicare premium can also be deducted as SE health insurance.

Please provide your cite where a spouse, without any direct involvement in a Schedule C business, can also deduct Medicare premiums as a SE health insurance adjustment to income.

It has been my understanding that the Medicare premiums must go with the person (not just automatically to include those of the spouse) who actually files his/her own Schedule C and who meets the other requirements (income, etc.) to claim the SEHI adjustment. Otherwise, Schedule A is the only place those premiums could be (theoretically) deducted.

In simpler terms, the "coverage" provided by Medicare premiums is only applicable to one person....the owner!! This differs significantly from a Sch C individual who purchases a private insurance policy that covers the owner AND a family member. The premiums for that type of coverage have always been allowable, with the usual limitations, for the SEHI adjustment.

As for whether a Sch C owner could use Medicare B premiums as a SEHI adjustment, isn't that kinda "old" news?? Discussed here at least near the start of the 2012 tax season??

FE

[Snaggletooth]

Old News

Duke, it may be old news, and has been discussed, but I think today's news from the IRS General Counsel is the first acknowledgement from them that could be cited.

If we stop to think about it, living by the letter of the law to deduct this required factors that were self-extinguishing on the face of it.

In the first place, a proprietor covers himself. If he covers his employees, the deduction doesn't appear here, it appears on Schedule C under employee benefits. So he has to cover just himself (and/or family). Then there is the matter of even being able to GET insurance for a single policy. Unless you are under 30 years old and run a marathon every day, you KNOW how impossible this is. The proprietor is thus left to find insurance as being part of some group. When this happens, the policy is no longer in his name, but is under the group. So it would appear the regulation was intentionally drafted to make it impossible to claim the deduction.

[DonPriebe]

Please provide your cite where a spouse, without any direct involvement in a Schedule C business, can also deduct Medicare premiums as a SE health insurance adjustment to income.

It's Conclusion 3 in the CCM http://www.irs.gov/pub/irs-wd/1228037.pdf

Conclusion 4 says it's always been this way, so you can file amended returns within the SOL.

[Davc]

Disagree. That's still in the context of premiums paid by the SP. Which the spouses medicare premiums usually are not.

[FEDUKE404]

Terminology problems

It's Conclusion 3 in the CCM http://www.irs.gov/pub/irs-wd/1228037.pdf

Conclusion 4 says it's always been this way, so you can file amended returns within the SOL.

While I acknowledge the IRS letter (which BTW cannot be used or cited as precedent!!), I still have a problem with this statement:

May Medicare premiums be deducted under section 162(l) for the coverage of a self-employed individual’s spouse, dependent or child (as defined in section 152(f)(1) who as of the end of the taxable year has not attained age 27)?

BY DEFINITION, the Medicare premiums paid are only on a policy for a single individual....there is no "spouse" or "family" Medicare coverage available. Each individual has his/her "own" policy. Or stated a different way, a person who operates a Schedule C business does not actually pay for his spouse's Medicare coverage....THE SPOUSE does that.

ASIDE: I run my own business - Schedule C. I pay for a medical insurance policy that covers me and my spouse. I do not (yet!) pay for Medicare, although my spouse has for several years. I have always deducted as SEHI (within limits) the cost of my insurance policy. When I start paying my own Medicare premiums, I plan to include them in the calculation. I have NEVER used the Medicare premiums my spouse "paid" because, well, I did not pay them. Is it your position that, with these specific facts, I could amend the prior year returns to include the Medicare premiums of my spouse in the calculations for my own Schedule C???

For me to do that, I would probably need something a bit stronger than a letter ruling....

Keep us posted on whatever the correct answer to this issue is....

FE

[DonPriebe]

Is it your position that, with these specific facts, I could amend the prior year returns to include the Medicare premiums of my spouse in the calculations for my own Schedule C???

A nit - the deduction doesn't have any effect on your Schedule C. It goes on the front of the 1040 for your (joint) return.

I just submitted an amended return for 2009 and referenced this CCM. We'll see what happens.

[FEDUKE404]

Clarification & a warning

A nit - the deduction doesn't have any effect on your Schedule C. It goes on the front of the 1040 for your (joint) return.

I just submitted an amended return for 2009 and referenced this CCM. We'll see what happens.

"FOR", not "ON" my Schedule C.

Obviously the SEHI adjustment to income appears on line 29 of Form 1040.

As for your referencing the CCM, you may wish to have a bit more ammunition in your gun than the mere memo. As clearly stated, underneath the subject: "This memorandum responds to your request for assistance. This advice may not be used or cited as precedent."

FE

[dodgedipduck]

"This memorandum responds to your request for assistance. This advice may not be used or cited as precedent."

FE

No, but the law and analysis may be used to support the position.

I'd have a difficult time preparing any return if I needed more authoritative sources for items than the IRS Chief Counsel's published opinion.

I'm trying to remember the last time the IRS went against a Chief Counsel Advice without a law change.

[FEDUKE404]

Just trying to make a point here

No, but the law and analysis may be used to support the position.

I'd have a difficult time preparing any return if I needed more authoritative sources for items than the IRS Chief Counsel's published opinion.

I'm trying to remember the last time the IRS went against a Chief Counsel Advice without a law change.

I don't plan to get into a head-butting session here, but I do feel the wording (and likely interpretation) of the following as cited in the opinion is very poor. What they mean is not always consistent with what they say! Simply look at how long it took the IRS to "clarify" that anyone's Medicare premiums could be included in SEHI. A strict reading of the (original) rules would always have justified that (for the owner of the Schedule C)....but there were numerous persons (including members of the TTB forum) who adamantly kept saying "No way!!"...until the IRS publications finally said "Way!!!"

Medicare is insurance that constitutes medical care under section 162(l).
Therefore, all Medicare premiums are similar to other health insurance premiums and
can be used to compute the deduction under section 162(l). This rule also extends to
Medicare premiums for coverage of a self-employed individual’s spouse, dependent, or
child (as defined in section 152(f)(1) who as of the end of the taxable year has not
attained age 27).

The self-employed person simply does not own the Medicare policy and does not pay the Medicare premiums for a spouse who is on Medicare. To many/most people, claiming such would be inconsistent with the SEHI regulations. Compare the situation where the spouse and/or child also had a (private) medical insurance policy, separate from anything owned by the self-emplyed individual. Would your approach be that those policies could ALSO be included in the SEHI adjustment?? Of course not! Conceptually, there is no different between this hypothetical question and the spousal Medicare issue.

**IF** this "exception" for Medicare (only) was the intent of the IRS, they might wish to rewrite the complete SEHI rules to minimize this apparent conflict which otherwise bestows "special rules" upon spousal Medicare premiums. A good start would be to replace the theoretically impossible "Medicare premiums for coverage of a self-employed individual’s spouse" with "Medicare premiums separately paid by the spouse of the self-employed individual." This assumes (ahem!) that is their overall intent....

We can all at least hope for some eventual clarification on this topic by the good folks at the IRS.

FE

[Snaggletooth]

Clear as Mud

We can all at least hope for some eventual clarification on this topic by the good folks at the IRS.

Duke, for crying out loud, do you really believe this will happen??

[Earl]

Medicare tax

IRS revised Publication 535 this year to say that Medicare premiums have to be paid in the name of the self-employed person to qualify for the deduction.

Revenue Service informally said that the change was made to make it clear that a spouse's Part D and Part B premiums don't count if the spouse isn't self-employed.

[FEDUKE404]

IRS clarification

IRS revised Publication 535 this year to say that Medicare premiums have to be paid in the name of the self-employed person to qualify for the deduction.

Revenue Service informally said that the change was made to make it clear that a spouse's Part D and Part B premiums don't count if the spouse isn't self-employed.

At the risk of having more things tossed at me here...."it only seems logical!"

I guess this means some amended amended returns might soon be coming down the pipe?

BTW: Where did you find the newest info re Pub 535?

FE

[appelman]

Here we go again!

You've got the CCA and you've got the new 535. You pays your money and you takes your choice! And who ever said that logic had anything to do with it?