SE Health Insurance

[Bees Knees]

You're misreading the code. The phrase "...derived by the taxpayer from the trade or business..." does not refer to the medical expense. It refers directly to "...the taxpayer's earned income..."

You’re ignoring the next phrase: “with respect to which the plan providing the medical care coverage is established.”

What does “with respect to which the plan providing the medical care coverage” mean? What plan? The taxpayer’s earned income? No. Its the plan, to which medical care coverage is provided. As in the employer has a plan to provide medical care coverage.

The "established" language refers directly to the income limit, not the expense. Some instruction writer at the IRS misread it and put that incorrect reference in the instructions saying the plan has to be established under the business.

The “established” language refers directly to the “plan,” not the income limit. The “plan” to which the employer has decided to cover medical expenses.

I agree the code is in reference to the income limit. But you are ignoring the “plan” that needs to be “established” in order to provide “medical care coverage” before we can even worry about the income limit. You have to have a plan. What is the plan? The plan to provide medical care coverage. How many other ways can it be said that the goal here is to have a “plan.” As in Plaaannnnnnningggg. Get it?

>>>Now I ask: Could a corporate employee ever pay for Medicare with pre-tax dollars? No. So if you allow self employed people to do that, you now went beyond Congressional intent.

Now I answer. Yes, a corporate employee could pay for Medicare with pre-tax dollars. It's called a Medical Reimbursement Plan.

Good point. But Medical Reimbursement Plans do not qualify for the self employed health insurance deduction. Only medical insurance premiums qualify. Not medical expense reimbursements.

So let me ask the question in a different way: Could a corporate employer provide medical insurance coverage for employees using Medicare as the insurance policy?

The IRS tried to spray perfume on a skunk by issuing the letter ruling, but the letter ruling doesn't solve anything, because the code is clearly in conflict with IRS position….Insurance doesn't have to be established under the taxpayer's trade or business. "Established" refers to the income limit.

It is one thing to say they took the wrong position in the instructions or in the Pubs. But here, we are talking about a letter ruling. Even though it carries little weight in court cases, they are used to establish official IRS position.

So are you ready to go to court over this? The IRS is clear that they think you need to establish a plan. It’s only a matter of time before they make that obvious in regulations.

[RLymanC]

Supplemental Ins.

What I meant in my original post when I said "medicare supplimental" was not Medicare part B, but the additional insurance called "Medicare Supplimental" that is purchased from private insurance comapany's to pick up the costs that medicare does not pay.

[JON]

You tell us now???

OOOOPPPPPS-great conversation guys.. I was worth the efforts all of you put in.

[Bees Knees]

What I meant in my original post when I said "medicare supplimental" was not Medicare part B, but the additional insurance called "Medicare Supplimental" that is purchased from private insurance comapany's to pick up the costs that medicare does not pay.

This is a scene right out of Saturday Night Live where Gilda Radner says: "Oh.....well that's different.....never mind."

[Armando Beaujolais]

What does “with respect to which the plan providing the medical care coverage” mean? What plan? The taxpayer’s earned income? No. Its the plan, to which medical care coverage is provided. As in the employer has a plan to provide medical care coverage.

From Letter Ruling 200524001

“A sole proprietor who purchases health insurance in his or her individual name has established a plan providing medical care coverage with respect to his or her trade or business, and therefore may deduct the medical care insurance costs for himself, his spouse and dependents under I.R.C. section 162(l)…”

There's your plan. You purchase health insurance and BINGO! Your plan is established. I must have missed the "except for Medicare" phrasing.

Alas, unfortunately the Letter Ruling only sprayed perfume on a skunk. The LR directly conflicts itself by applying a broad inclusion in the first part, then attempting, with slight-of-hand, to say that the broad inclusive rule in the first part magically became a specific restrictive rule in the second part.

Also from the Letter Ruling:

"However, if a self-employed individual has more than one trade or business, he or she may deduct the medical care insurance costs of the self-employed individual and his or her spouse and dependents under each specific health insurance plan established under each specific business up to the net earnings of that specific trade or business."

Even the LR doesn't pull out the "established under" skunk until it starts talking about the income limit.

Under the clear as mud clarification of the LR, "established under" can be as inane as clicking your heels three times, closing your eyes, and saying "It's established under Toto Company," or it can be as specific as putting the insurance under your business name. Established is not established, and therefore it shouldn't be used as a litmus test for qualification.

I think the intent of the "established under" clause was to keep you from setting up a partnership or S corporation solely for the purpose of deducting health insurance. A person with no real self employment could set up an S corporation, provide insurance for himself, deduct the insurance, and whaddya know. Deductible.

And we can get into a whole nother discussion about whether a sole proprietorship is or can be a separate entity from the individual. If a sole proprietorship cannot be separated from an individual, the sole proprietorships cannot be separated for purposes of an income limit.