SE Health for Spouse / Dependent

[mactoolsix]

I know this has been discussed many times before, but search doesn't find a relevant post.

Sch C taxpayer has his own health insurance - obviously qualifies as SE Health.
His spouse (not employed, not self-employed and does not work in the Sch C business) has a separate health policy.
Son (dependent) has another separate health policy.

Does the spouse's and son's health insurance qualify as SE Health?

Any cites you can point me to would be appreciated.

Mike

[TaxGuyBill]

Many tax professionals may disagree with me, but I say yes.

CCA 1228037 clarifies that Medicare counts for the Self Employed Health Insurance deduction. It also says "This rule also extends to Medicare premiums for coverage of a self-employed individual’s spouse, dependent, or child".

So if a Medicare policy for a spouse or dependent qualifies (the Medicare policies would be separate policies in the name of the spouse or dependent), it is reasonable to conclude that any separate policy of a spouse or dependent would qualify.

https://www.irs.gov/pub/irs-wd/1228037.pdf

[mactoolsix]

Thanks Bill,

That's the rational we've been using, but I was hoping there was a clear cite on this . . . guess I was dreaming for something to be clear from the code.

Mike

[Kram BergGold]

Agree

I have finally come around to the position that you are allowed to claim SE Health for a spouse or dependent who has their own policy.

[TXEA]

The IRS website (not substantial authority) still notes that if you are self-employed and file a Schedule C, the policy must be in the name of the self-employed individual or in the business name. The allowance of the deduction for Medicare premiums has thrown what should be a simple deduction into a guessing game.

[FEDUKE404]

Still support only OWNER's policies

The IRS website (not substantial authority) still notes that if you are self-employed and file a Schedule C, the policy must be in the name of the self-employed individual or in the business name. The allowance of the deduction for Medicare premiums has thrown what should be a simple deduction into a guessing game.

I tend to agree with TXEA, that the Sch C owner can deduct premiums for *THE OWNER'S* policy which may include coverage for spouse/children. as well as *THE OWNER'S* Medicare B premiums.

The Sch C owner cannot deduct premiums for policies owned by others, nor for another person's Medicare B premiums, as a SEHI adjustment.

Yes, I've heard all of the arguments/etc (UNCLE!!) but I am content in taking this approach. Others may differ.

See cut/paste below, from 2015 Publication 535. Who knows what 2016 will bring. . .

FE

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 the 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 the 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 in box 1 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. Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction.

[TaxGuyBill]

The Sch C owner cannot deduct premiums for policies owned by others, nor for another person's Medicare B premiums, as a SEHI adjustment.

I don't want to argue, but how do you explain my citation above "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"?

https://www.irs.gov/pub/irs-wd/1228037.pdf

[FEDUKE404]

Response to TaxGuyBill re SEHI

I'm way past anything resembling "arguing" on this topic.

The original controversy was whether ANY Medicare B premiums, to include those of the business owner, could be used for the SEHI adjustment. Many folks thought such was clearly permissible, absent specific verbiage addressing that point. Guidelines were later clarified to allow such. Now the conversation has shifted to the other extreme, namely allowing Medicare B premiums of the spouse and apparently even premiums for separate policies OWNED by the spouse/dependents to somehow be included as "owned" by the business owner and thus allowable for SEHI.

Group A cites the verbiage, which has remained fairly consistent over the years, from IRS Publication 535 as being a guideline restricting policies (including Medicare) to only those "owned" by the business person. (Perhaps the 2016 Pub 535 will clarify further?)

Group B cites the 2012 IRS Memorandum as gospel. Said memorandum does make references to "if all the requirements of section 162(l) are satisfied." That can easily turn into a circular argument. The memorandum conclusions are inconsistent with the Pub 535 guidelines. Whether current tax returns can cite the 2012 IRS Memorandum as a "rule" is perhaps questionable.

Group C folks are those with an iron-clad knowledge of the IRS statutes and current valid/binding citations of same. They are always worthy of our deepest attention. Sometimes they offer their expertise on this discussion board.

Otherwise. . .just pick the group you are happy with, and trundle onward.

FE

[TaxGuyBill]

Interesting.

I'll just leave it with one last thought: When Publication 535 says that the policy can be in the name of the Individual, that is based on Memorandum 200524001. If a person is preparing a tax return based on the information on that Memorandum, I don't understand why a person would question the other, newer Memorandum about Medicare. If you don't prepare a tax return in harmony with the Medicare Memorandum, why would you prepare a tax return in harmony with first Memorandum (which allows the policy to be in the name of the Individual)?

I agree that it would be nice if there was a nice, clear-cut answer, but that isn't the case. In my opinion you can't just pick-and-choose which Memorandums you want to follow.


Sorry, I don't mean to argue it, I'm just curious how other people view it. Please forgive me. I'll try to drop it now. :-)

[TXEA]

This is an interesting discussion. I have re-read the 2012 Memorandum. The memorandum seems to only reference Medicare premiums. There is not one place that references individual health insurance premiums. So, it may be a fetch to say that the 2012 Memorandum overrides the rule that a traditional health insurance premium be in the name of the of the Schedule C business owner.

So, I wonder why Chief Counsel addressed the issue of Medicare premiums. Could it be that the over 65 business owner had no other option for coverage? In Texas, prior to ACA, the over 65 business owner could not purchase an individual health plan (they could be on a group).

Maybe the 2012 Memorandum was silent on traditional individual health insurance premiums because no change was being contemplated in the rules for this type of coverage.

[TaxGuyBill]

The memorandum seems to only reference Medicare premiums. There is not one place that references individual health insurance premiums.

That is exactly why it is a "gray area" and there is so many discussions about it. :-)

Some people (including me) reason that if Medicare policies can be in the name of a Spouse of Dependent (it seems quite apparent to me that is allowed in the Memorandum), rather then in the specific name of the Business Owner (Medicare policies are all individual, so Spouse and Dependent policies would be in their names, not the Business Owner's name), then that would also apply to non-Medicare policies.

As you say, there could be other reasoning behind it. However, in my opinion because the Memorandum did NOT expand on 'other reasoning', it does not seem to be an 'exception to the rule', but part of the rule itself.

It would be nice if the IRS gave a clear-cut answer.


This may not directly enter into the discussion, but when a person has a Partnership Interest or stock in an S-corporation, their spouses are considered "constructive owners", including for Fringe Benefits. At times it also applies to a Sole Proprietor's spouse too. I have not seem official documentation applying that to the SEHI deduction, but the concept might be applied to the SEHI deduction. Again, it may not apply directly, but in my opinion it does give a little more support of the idea.

[TAXNJ]

A YEAR LATER SAME DISCUSSION BUT MORE REPLY POSTERS AND INFO - see TTB Forum 2-17-15 post by FEDUKE404 titled "SEHI limitations - a NEW wrinkle needing an answer"

http://forum.thetaxbook.com/showthread.php?24920-SEHI-limitations-a-NEW-wrinkle-needing-an-answer