Self-employed health insurance - The IRS has now spoken !!

[FEDUKE404]

From the 2012 IRS Publication 535 ( page 18 of http://www.irs.gov/pub/irs-pdf/p535.pdf )


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. The insurance can also cover your child who was under age 27 at the end of 2012, 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 received wages in 2012 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages 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 in your name that is similar to qualifying private health insurance can be used to figure the deduction. If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. For more information, see Form 1040X, Amended U.S. Individual Income Tax Return.



Those who filed amended returns having self-employed Spouse A (who legitimately can claim his/her own Medicare premiums so long as the other SEHI rules are met) also claiming the Medicare premiums of Spouse B as a qualifying SEHI deduction may need to reconsider the merits of their actions.


Time to move on.....this dead horse has been beaten to an absolute pulp on these boards.

FE

[Burke]

Thank you verra much......

[JohnH]

So since I just began to be covered by Medicare this year but am not collecting Social Security, my corporation needs to either reimburse me for the premium payments or else just pay the premiums on my behalf. But the premiums for the secondary coverage which are deducted from my wife's retirement benefit as spousal coverage must still go on Schedule A subject to the haircut.

Thanks for posting that.

[appelman]

Pub. 535 language has not changed.

The language quoted from Pub 535 does not appear to have changed since last year. Why are WE now giving it an opposite interpretation regarding a spouse's Medicare premiums?

[FEDUKE404]

Verbiage IS different in 2012 Publication 535

The language quoted from Pub 535 does not appear to have changed since last year. Why are WE now giving it an opposite interpretation regarding a spouse's Medicare premiums?

The language HAS changed from the 2011 Pub 535 and now more directly clarifies the issues related to "in the name of the business" and WHOSE Medicare premiums can be used for the SEHI deduction.

FE

[appelman]

What am I missing?

The verbiage that was highlighted in the quote was there in the 2011 Pub. So where is the change that is so significant?

[FEDUKE404]

VERY interesting

The verbiage that was highlighted in the quote was there in the 2011 Pub. So where is the change that is so significant?

I think the IRS is playing games with us. There is NO WAY that verbiage originally existed in the (earlier) 2011 Publication 535.

http://www.irs.gov/pub/irs-prior/p535--2011.pdf

Oh well, the sides are in place: Follow the IRS rules as stated in the publications, or rely on the contradictory guidelines as stated in "the letter."

One side is wrong, and one side is right. Maybe some day the IRS will step up to bat and straighten it all out....but I'm not holding my breath!

I've wasted far more time that I ever should have on this topic. MY choice is clear to me...everyone else is free to put their own spin on the printed words.

FE

[appelman]

Am I living in a a parallel universe?

From FEDUKE's link:

"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."

and

"Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction."

(Italics are mine.)

So exactly what is the difference? Can someone please enlighten me?

[Burke]

I think the controversy arose because of something else; a letter, rev ruling or something. It's been on the board.

[Bees Knees]

CCA 201228037, dated May 01, 2012 and written AFTER the 2011 version of IRS Pub 535 says in part:

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

Since Medicare can only be purchased on an individual basis (it cannot be purchased by a taxpayer for his/her spouse or child), this quote from the IRS letter ruling makes no sense, unless you interpret to mean that if the taxpayer otherwsie qualifies for the self-employed health insurance deduction (because he/she is self-employed, has no other coverage, etc.), then the Medicare premiums paid for the spouse and child can also be included in that calculation.

I agree IRS Pub 535 does not say that, but CCA 201228037 seems to say it.

If you think about it, the extra cost of health insurance for a sole proprietor that covers the spouse and child ARE included in the SE health insurance deduction. Why should Medicare be excluded simply because it can only be purchased on an individual basis?

[Bees Knees]

Confusion over the law centers around the requirement that the health insurance be purchased in the business name. This requirement comes from IRC §162(l)(2)(A) which says:

No deduction shall be allowed under paragraph (1) to the extent that the amount of such deduction exceeds the taxpayer’s earned income…derived by the taxpayer from the trade or business with respect to which the plan providing the medical care coverage is established.

For years, this requirement that the medical care coverage be established under the trade or business was interpreted to mean that the business purchase the medical insurance. If the sole proprietor, S corp shareholder, partner, etc. purchased the medical insurance under his/her name, and not under the name of the business, it was interpreted that the insurance did not qualify for the deduction.

That interpretation was proven wrong in IRS Letter Ruling 200524001 when it made it clear that the sole proprietor and S corp shareholder could in fact purchase the insurance under the individual’s name and still qualify. Although the S corp shareholder has to have the S corp reimburse the shareholder for the cost or have the corporation directly pay the insurance that is in the individual’s name, no such requirement is imposed on sole proprietors. Thus, as long as a sole proprietor otherwise meets the requirements of Section 162(l), any insurance purchased by the sole proprietor is considered to be insurance established under the trade or business and thus qualify for the deduction.

To me, that means sole proprietors qualify for the deduction as long as they have a net profit, purchase insurance, and are not covered by any other employer sponsored insurance. The “purchased in the name of the business” rule is too vague to place any meaning on it when the IRS interprets it to include ANY insurance purchased by the sole proprietor.

Again, this does not solve the spouse and child issue covered under Medicare (other than what is written in the letter ruling), but keep in mind it is the code itself that says sole proprietors can claim the self-employed health insurance deduction for insurance purchased for “the taxpayer, the taxpayer’s spouse, the taxpayer’s dependents, and any child…of the taxpayer who as of the end of the taxable year has not attained age 27.” IRC §162(l)(1).

[AZ-Tax]

S-Corp, 1 shareholder NO employees

Although the S corp shareholder has to have the S corp reimburse the shareholder for the cost or have the corporation directly pay the insurance that is in the individual’s name.

S-Corp with 1 shareholder not taking a salary therefore NO W-2 and no employees. Shareholder has Major Med Ins Plan in his name covering 4 member family. Should S-Corp reimburse shareholder the premium?

[Burke]

If it does, it has to be included in his W-2. If he did not take a salary, that brings up the problem of filing late payroll reports and declaring such.

[Kram BergGold]

Bees Knees?

You seem to be saying that you think the non Self Employed spouse's medicare premiums under his or her name can be deducted by the self employed spouse. I say no. The spouse's medicare is under his or her name and therefore can not be treated as self employed health insurance. I understand that in theory the self employed spouse can deducted the non self employed spouse's health insurance but it has to be in the self employed person's name. Medicare is not so it does not qualify. I see no other way to look at this.

[veritas]

Trouble is

From the 2012 IRS Publication 535 ( page 18 of http://www.irs.gov/pub/irs-pdf/p535.pdf )


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. The insurance can also cover your child who was under age 27 at the end of 2012, 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 received wages in 2012 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages 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 in your name that is similar to qualifying private health insurance can be used to figure the deduction. If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. For more information, see Form 1040X, Amended U.S. Individual Income Tax Return.



Those who filed amended returns having self-employed Spouse A (who legitimately can claim his/her own Medicare premiums so long as the other SEHI rules are met) also claiming the Medicare premiums of Spouse B as a qualifying SEHI deduction may need to reconsider the merits of their actions.


Time to move on.....this dead horse has been beaten to an absolute pulp on these boards.

FE

they been speaking wrongly about this deduction from the get go.