Self Employed Health Insurance - Spouse has a paid plan for W2 employer

[Justataxguy]

Another Scenario

Person with a profitable seasonal self employment Schedule C also had W-2 income from employer until employer closed business and laid off all employees. Person is offered to continue insurance under COBRA paying premium themselves and chooses to do so. Is this then able to be used as SEHI since it is in the person's name and is not paid with pre-tax dollars?

[FEDUKE404]

Go for it!

Person with a profitable seasonal self employment Schedule C also had W-2 income from employer until employer closed business and laid off all employees. Person is offered to continue insurance under COBRA paying premium themselves and chooses to do so. Is this then able to be used as SEHI since it is in the person's name and is not paid with pre-tax dollars?

I would think "yes" (for only the COBRA premiums) -- and if spouse exists and Sch C guy could not be covered under that spouse's employee coverage.

There is no "employer" insurance.

There is also no "pre-tax dollars" possible if a person is not an employee.

(Of course, the IRS may disallow it because the client's grandfather used Income Averaging in 1974. )

FE

[Kram BergGold]

What NATP says

I just used my annual free question on this topic. The researcher said if you read the CCA it says in order to deduct the spouse's medicare you have to meet the requirements of 162L. 162L says the policy has to be in the name of the self employed. My wife (who is not self employed) has Medicare Insurance in her name, not mine and not in the name of my business. So it fails the
162L test and is not deductible as self employed health insurance, in my opinion. I hope my interpretation is correct, but I can't see how one can interpret this the other way. She also said the IRS' response to NATP on this issue did not clarify this issue.

[Bees Knees]

The researcher said if you read the CCA it says in order to deduct the spouse's medicare you have to meet the requirements of 162L. 162L says the policy has to be in the name of the self employed.

Since Medicare can only be individual coverage, then the CCA should have said Medicare for the spouse, dependents, and children under age 27 would not qualify, since their Medicare coverage would not be in the self-employed taxpayer's name.

The CCA did not do that. It is possible for the IRS to rule that Medicare coverage for the spouse and children is considered to be in the name of the taxpayer, similar to the rule for 2% shareholders of an S corporation. If coverage is in the name of the individual shareholder, its not in the name of the S corporation. Prior understanding of this said such coverage did not qualify for the SE health insurance deduction. Then later, IRS ruled that it is considered to be in the name of the S corporation if the S corporation reimburses the shareholder for the insurance, or pays the premiums directly.

At any rate, even though NATP makes a good point as to why Medicare for a spouse or child should not qualify, the fact remains the CCA does in fact say it qualifies.