Use both spouse's 2022 med ins premiums paid as SE med or not ?

[RWG1950]

Have acquired new retired customers (MFJ) in another state. They have been using the standard deduction.
Wife had been SE insurance sales & although now retired, files a "C" for the $50-K in annual renewal commissions she receives.
Husband had no SE income.
Former CPA preparer had not claimed any SE medical ins. on schedule 1 for 2022.
In 2022 they paid medicare supplement ins premiums, parts "B" and "D" & long term care insurance that totaled $21,260 (about even between them)
It is my understanding that the entire $21,260 could have been deducted as SE insurance on their original 2022 return.
I'm wondering if other preparers have a different view on using both spouse's medical insurance premiums for the SE medical deduction.
Thanks for comments

[Rapid Robert]

You are correct about using both spouses' Medicare for SEHI deduction (and LTC, subject to age limits on premiums paid)

"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 (Form 1040) or Schedule F (Form 1040), a policy can be either in the name of the business or in the name of the individual.

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." Pub 5355

"If you were self-employed and had a net profit for the year, you may be able to deduct, as an adjustment to income, amounts paid for medical and qualified long-term care insurance on behalf of yourself, your spouse, your dependents, and your children who were under age 27 at the end of 2022." Pub 502

[kathyc2]

Retired insurance agents may be exempt from SE if the following conditions are met.

1. Termination payments you received as a former insurance salesperson if all of the following conditions are met.
   1. The payment was received from an insurance company because of services you performed as an insurance salesperson for the company.
   2. The payment was received after termination of your agreement to perform services for the company.
   3. You didn’t perform any services for the company after termination and before the end of the year in which you received the payment.
   4. You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date of termination.
   5. The amount of the payment depended primarily on policies sold by or credited to your account during the last year of the agreement, or the extent to which those policies remain in force for some period after termination, or both.
   6. The amount of the payment didn’t depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payment depended on length of service).

[Rapid Robert]

I don't think the OP was referring to "termination payments" which seem to be one-time payments received within a year or so of leaving. (kathyc2 post above is about "termination payments", page SE-5 of Schedule SE instructions).

Instead, I think the OP is referring to regular ongoing commissions, which are described as being included in net income from self-employment and hence subject to SECA.

"6.Amounts received by current or former self-employed insurance agents and salespersons that are:
a. Paid after retirement but figured as a percentage of commissions received from the paying company before retirement,
b. Renewal commissions, or
c. Deferred commissions paid after retirement for sales made before retirement."

[kathyc2]

I don't think the OP was referring to "termination payments" which seem to be one-time payments received within a year or so of leaving. (kathyc2 post above is about "termination payments", page SE-5 of Schedule SE instructions).

Instead, I think the OP is referring to regular ongoing commissions, which are described as being included in net income from self-employment and hence subject to SECA.

They are not just for one time payments. I had a widow of agent receiving residual payments for many years. One year IRS sent letter that it may be subject to SE, and after I wrote letter, they agreed to no change on returns. State Farm had always reported it as Box 3 income on the old 1099 Misc.

[RWG1950]

Rapid Robert & Kathy: Thanks for your comments

Kathy
It is common these days for an insurance or investment salesperson to be considered an independent contractor/broker and get a 1099 form for both first year (new business)
sales commissions and vested renewal commission payments for previously sold policies that remain on the books. A schedule "C" & SE tax is obvious in this case.
But when this person "retires" they usually retain their selling contract with the company (but stop selling new business) just to continue to receive their renewal commissions.
These vested renewal commissions are paid to the "retired" agent as long as the policy remains active (unless their "book of business" is sold) whether he/she is providing any type of service to the customer or not.
I'm still a little fuzzy on the interpretation of "termination payments". Do you feel that based on the above (for my customer) that no SE tax would apply ?

[kathyc2]

Do you feel that based on the above (for my customer) that no SE tax would apply ?

Possibly. You would need to find out more exactly why the payments were made and if they meet the requirements of 1402(k) to be excluded.

What form/box were the payments reported on?

[RWG1950]

The 2022 renewal commissions were reported to the taxpayer on 1099-NEC box #1 non-employee compensation

[kathyc2]

The 2022 renewal commissions were reported to the taxpayer on 1099-NEC box #1 non-employee compensation

Then either the 1099 is incorrect or the payer has determined that conditions of 1402(k) have not been met.

I'd probably present client with the 1402 requirement list and if they think they qualify, it's up to them to work with former company to see if reporting can be changed to 1099Misc Box 3.

[Rapid Robert]

I'm glad someone looked up the tax code, I was going to give it a shot tomorrow. Kathyc2, I understand that IRS did not continue to challenge it for the one instance you described, but that doesn't mean much, maybe just that they didn't think it was worth auditing any further.

Somehow, I can't see how a "termination payment" (singular) is something that can apply across multiple ongoing years, over and over. You can only be "terminated" once, right? There obviously must be some conditions where it is considered SE, otherwise the instructions would not have explained both situations. In the conditions you posted from the form instructions, I'd say that items 3, 4, and 5 clearly indicate a one-time payment received within a year or so of termination, not ongoing payments for years and years.

In any case, we did answer the original question, which is that assuming it is self employment income, yes both taxpayer and spouse Medicare etc can be used for SEHI. Maybe that is just about as good a benefit anyway given the parameters posted here, especially considering state taxes as well as federal.

edit: speaking of comparing no SE tax, versus SEHI deduction both fed and state (which is what I think we are doing as a side exercise), also remember that the latter reduces AGI, while the former does not, so that is another reason to maybe prefer the SE treatment. Retired people can often benefit greatly from reduced AGI.

[DoubleO]

It looks as if you are applying paragraph 4 without considering paragraphs one and two. How does a policy in the name of the spouse qualify as being in the business name or in the name of the (self-employed) individual? Yes, my interpretation of “individual,” the last word in the second paragraph, is that it means the self-employed individual.

I’m not being flippant, and I know your interpretation is the one many tax pros have taken since this guidance was released, but I’m wondering if the Medicare in spouse’s name and deducted from spouse’s SS payments really qualifies.

I don’t see where paragraph four negates the requirements of 1 and 2. And yes, I have read and reread the guidance, chief counsel memos, etc., several times.

Paragraph 4 says, “On behalf of ….”. Again, does that negate the requirement that it be in SE TP’s name?

And to change the question a bit, what about a self-employed TP on Medicare who is eligible to still be covered on spouse’s employer insurance, but elects not because,hey,he’s covered by Medicare.

[DoubleO]

Note my post was referring to Rapid Robert’s response to the original post, but I’m sure you figured that out.

I couldn’t edit to clarify.

[Rapid Robert]

See Letter Ruling 201228037. Our host, TheTaxBook, released one of their excellent series of "tax industry updates", this one on 7/31/2012, which described how the IRS changed its position from 2009 to 2010, and that the form instructions since then include the deductibility of both taxpayer and spouse Medicare.

"All Medicare Parts are insurance that constitutes medical care under section 162(l).

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 the individual’s child who as of the end of the taxable year has not attained
age 27.

Self-employed individuals who failed to deduct Medicare premiums for prior years
may file an amended return to claim the deduction."

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[As for your futher question, "eligible to still be covered on spouse’s employer insurance", I think you are confusing ACA subsidy qualifications with SEHI deduction. I don't recall that SEHI deduction is in any way dependent on what types of coverage might be available to you that you don't choose. Obviously from a practical view, since coverage through an employer is exempt from both income tax and FICA tax, that might be a better choice than SEHI, but it does not prevent use of SEHI deduction.]
END DELETE

edit: sorry, I was wrong, yes SEHI deduction is not allowed for any month when taxpayer is eligible for subsidized employer coverage. Neither "eligible" nor "subsidized" are clearly defined anywhere to my knowledge.

Further I also see you state that you have read the IRS guidance, so it's not that you are not aware of it, but simply that you disagree with it. That's your prerogative, but I hope you don't insist that your clients forgo a deduction that is clearly allowed by the IRS.

[DoubleO]

Hmmm. From Letter Ruling 201228037:

“Sole proprietors must pay the Medicare premiums directly.”

[DoubleO]

Also, as noted in the LR, the disclaimer, “if all requirements of 162(l) are satisfied.”