Medicare Premiums Deductible as SEHI

[FEDUKE404]

Walking back the walkback

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?

Your point is valid, but I still feel SEHI expenses should be the expenses of the actual self-employed individual shown as the owner of the Schedule C.

That is really not an overly complicated concept for me to grasp.

That was the same position I took when the IRS (indirectly) previously stated that NO Medicare premiums could be considered for the SEHI adjustment.

At this stage I don't plan to get overly stressed. By tax-filing season for calendar year 2012, who knows what rules/interpretations might then be in effect?

FE

[Earl]

Info from Kipplinger's Tax Letter.

[FEDUKE404]

Source

Info from Kipplinger's Tax Letter.

I also subscribe to The Kiplinger Tax Letter and cannot find anything in the current issue (#15, July 20th) that addresses the SEHI/Medicare issue.

Their "online access" apparently just sends future editions to my email inbox.

Can you be more specific where The Kiplinger Tax Letter addresses this topic?

Thanks!!

FE

[JohnH]

It was in the print edition for June 2012 - page 2, near the bottom of the page. (Right after the "No Tax Deduction for Lessing the Fire Department Burn Down Your House" paragraph).

[FEDUKE404]

Cannot locate

It was in the print edition for June 2012 - page 2, near the bottom of the page. (Right after the "No Tax Deduction for Lessing the Fire Department Burn Down Your House" paragraph).

I looked through both the #12 (June 8th) and #13 (June 22nd) newsletter and could not find the info you stated.

I did find on page 3 of the #14 (July 6th) newsletter "Letting the fire department torch your house doesn't qualify for a write-off," but nothing nearby re SEHI.

To reiterate, I have the publication called "The Kiplinger Tax Letter," printed on blue paper.

In any case, to be concurrent with this thread, I'm looking for something to support Earl's earlier statement as follows:

"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."

Maybe it's just the heat??

FE

[JohnH]

OH, now I see mine's a "Special Edition".
Not that I'm special to them, but my subscription is about to expire.

[FEDUKE404]

Confusion in the land of Kiplinger

You can't make this stuff up!


From the current (August 3rd) issue of The Kiplinger Tax Letter:

IRS lawyers confirm that self-employeds can deduct Medicare premiums.
Premiums paid for all parts of Medicare are included in the deduction for health insurance on the front page of the 1040 form.
This easing also applies to partners, provided the partnership paid the premiums or reimbursed the partner, and the amounts are reported as guaranteed payments that are taxed as income.

Similar rules apply to 2%-or-more shareholders of an S corporation: Either they pay the premiums and get reimbursed by the S firm or the company pays. In both cases, the premiums must be included as taxable wages on the shareholder’s W-2 form.

Medicare premiums paid by a spouse qualify as well, the Service says.

Filers who didn’t take the deduction in prior years can file for a refund, but only for returns on which the three-year statute of limitations has not yet run.


*******************************

This is not to be confused with their previous notice:


Although self-employeds can deduct their Medicare Part B and D premiums ...

They can't take their spouse's Medicare premiums on the front of the 1040, according to IRS. It 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.

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

Nevertheless, it would behoove IRS to quickly publish official guidance on the subject.



Who's on first? What's on second? ......

FE

[Burke]

You can't make this stuff up!
From the current (August 3rd) issue of The Kiplinger Tax Letter:

IRS lawyers confirm that self-employeds can deduct Medicare premiums.
Medicare premiums paid by a spouse qualify as well, the Service says.
Filers who didn’t take the deduction in prior years can file for a refund, but only for returns on which the three-year statute of limitations has not yet run.
FE

My first action would be to research this a little bit. What lawyers? In what document? This sounds like a paraphrasing by Kiplinger of the material. I would like to see the source.

[FEDUKE404]

Merely running in circles

My first action would be to research this a little bit. What lawyers? In what document? This sounds like a paraphrasing by Kiplinger of the material. I would like to see the source.

I imagine the Kiplinger folks are perhaps referencing this previously cited opinion ( http://www.irs.gov/pub/irs-wd/1228037.pdf ) which is where this TTB adventure began.

Of course, it is IMPOSSIBLE for a husband with a Schedule C to "own" his spouse's Medicare policy (or to have her covered on "his" Medicare policy) and thereby have the spouse's Medicare premiums eligible for any SEHI adjustment....but that basic fact now seems hopelessly lost in the discussion.

And then, maybe the source for the Kiplinger folks is the same one Senator Harry Reid is using??

FE

[Kram BergGold]

TTB says ok to claim spouse's medicare

I just read a TTB Update which says it is ok to claim spouse's medicare.
To me this makes no sense as the policy is not in the SE person's name but many things in the code and IRS don't make sense. So I guess I will need to amend a few returns.

[Edward]

The Kiplinger Tax Letter of June 2012 (ref JohnH post of 7/26/12) says: ALTHOUGH SELF-EMPLOYEDS CAN DEDUCT THEIR MEDICARE PART B & D PREMIUMS...THEY CAN'T TAKE THEIR SPOUSE'S MEDICARE PREMIUMS ON THE FRONT OF THE 1040 according to IRS. It revised Pub 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. The Revenue Service has informally told us that the change was made to make it clear that a spouse's Part B and D premiums don't count if the spouse isn't self-employed. Nevertheless, it would behoove IRS to quickly publish official guidance on the subject.

[FEDUKE404]

However...

The Kiplinger Tax Letter of June 2012 (ref JohnH post of 7/26/12) says: ALTHOUGH SELF-EMPLOYEDS CAN DEDUCT THEIR MEDICARE PART B & D PREMIUMS...THEY CAN'T TAKE THEIR SPOUSE'S MEDICARE PREMIUMS ON THE FRONT OF THE 1040 according to IRS. It revised Pub 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. The Revenue Service has informally told us that the change was made to make it clear that a spouse's Part B and D premiums don't count if the spouse isn't self-employed. Nevertheless, it would behoove IRS to quickly publish official guidance on the subject.

And as already mentioned in MY above post of August 3rd, citing the more recent Kiplinger Tax Letter of August 3rd, the Kiplinger folks have since (apparently) reversed themselves on the subject...........

It appears no one really knows the rules.

I plan to keep my "amending" powder quite dry until I see a Pub 535 for 2012.

FE

[ruthc]

COBRA Payments

Not to change the "premium" subject from Medicare to COBRA, but I am on COBRA and was self-employed last year. Could I have claimed the COBRA payments on Sch C? Thanks

[FEDUKE404]

Perhaps to probably

Not to change the "premium" subject from Medicare to COBRA, but I am on COBRA and was self-employed last year. Could I have claimed the COBRA payments on Sch C? Thanks

Well, you never claim the payments "on Schedule C" but rather consider qualifying medical insurance premium payments for the SEHI adjustment to income on the front of Form 1040.

The rules (aside from the Medicare issue) are very specific as to other medical coverage, who is covered by the policy, who "owns" the policy (cannot be related to "employee" coverage), and most importantly the dollar limitations of the potential credit as limited to net Sch C income for the individual(s) involved. If you were covered, or could have been covered (even by a working spouse policy) at some point during the year, by any "employer" medical coverage, you must make adjustments for the income earned while you were "covered."

If you meet each and every criteria, and have sufficient net Sch C income to "use" the credit, then I see no reason why COBRA would not count. The possible glitch in that conclusion is whether COBRA could be deemed related to "employee" benefits, which to a certain extent it is/was. You will have to research that issue yourself as it relates to SEHI.

Oh yes: Don't forget that whatever insurance premiums get used by SEHI cannot also be used for Sch A medical deductions.

Good luck!

FE

[JohnH]

I'm just thinking about the implications of all this for a taxpayer who has deductible medical expenses over and above the Medicare premium. If the Medicare premiums are left on the Schedule A, the only effect is that they forego the reduction in AGI and thus the 7.5% haircut increases by the amount of the SEHI premiums. Since Medicare premiums average about $1,500/year per person, for a joint return this means that the AGI reduction yields an increase of about $225 in medical expenses on the Schedule A ($3,000 x 7.5%). At a top marginal Fed & state tax rate of 33%, this would mean a savings of $70 at the most ($225 x 33%).

If my math is right, then a taxpayer who otherwise has deductible medical expenses, it might be worth foregoing the $70 savings to avoid the hassle of having the deduction questioned. This is especially true since there seems to be so much uncertainty over the deduction. For a single taxpayer the $35 savings certainly wouldn't be worth the potential hassle. Amending would be out of the question IMO.

If the taxpayer has other AGI-related adjustments which might hinge on this deduction, for a non-itemizer, or for an itemizer who doesn't have totyal deductible medical expenses in excess of the haircut, the answer might be different. But I think I'd look at total medical expenses before I even bothered going through this exercise for most taxpayers.