self employed health insurance

[Bonnie]

Tax return is for a married couple. Wife has SE income and wants to claim insurance premiums. Most of the year the husband had an employer who offered health insurance but it was too costly so they did not take insurance through the employer. I know that part of the year she cannot use premiums she paid. Question is about first 3 months of the year when he was changing jobs. He left one job and had the option to continue paying health insurance premiums on policy he had with that company (COBRA). Does the period of time he was elibible for this COBRA disqualify her during that time as well, or can she claim the premiums for that 3 month period?

Thank you
Bonnie

[Snaggletooth]

Claim It All

Bonnie, this is not the perfect answer, but if there is a profitable business, I claim ALL such insurance paid during the year as an adjustment.

I do not take section 125 insurance or any insurance associated with an employee. However, to the extent of profits, I will take just about anything that is true medical insurance. For example, in 2006 I took Cobra on my own personal return, as I am in a dilemma if I leave Cobra for another type policy. Most people would think Cobra does not meet the allowable standards IRS has defined.

There was for years a pre-occupation with a policy having to be written for a specific business by name. This was hardly fair or enforceable and a couple years ago IRS backed off this position rather than having to explain their definitions.

IRS has already gone to great lengths to assure that this self-employed insurance is not deductible on Schedule C, where the deduction would do the most good. The lack of availability and strict constructionist viewpoint for purist definition already pose an almost untenable position for the self-employed. Full deductibility is allowed on Schedule C if the self-employed is a "employee" and the business does not employ anyone else.

I remember when the itemized medical deduction threshhold was 3%. Then 5%. Now 7.5%. It's obvious that the government is not going to DO anything about the cost of medical costs, but they sure want to bail out of paying for it.

I can assure you that my position on Self-Employed health insurance is more liberal than most others.

[DixieEA]

Question

Snag, are you saying you allow the insurance adjustment even if the self employed
person could be covered under spouses subsidized plan?

DixieEA

[Snaggletooth]

Yes

Dixie, so long as the self-employed person is paying for health insurance I believe the deduction is allowed. The fact that he(she) can be tacked on to spouses policy should not be a factor.

Of course, if it were me, I would drop my insurance and jump on with my wife. But so long as I was paying for insurance I would deduct it. Correct me please if this is wrong.

Thanks, Snag

[Jiggers]

Self-employed health insurance

I disagree. The IRS instructions are very specific: "But if you were also eligivle to participate in any subsidized health plan maintained by you or your spouse's employer for any month or part of a month in 2006, amounts paid for health insurance coverage for that month cannot be used to figure the deduction."

It says "...you were also eligible.." It doesn't say that you "MUST".

[DixieEA]

Snag, I agree with Jiggers, the part about being "eligible" seems to be very specific. If
anyone has any IRS determination that is any different I would appreciate any
input.
Thanks, DixieEA

[Snaggletooth]

Thanks

...to Jiggers and DixieEA. I stand corrected. Fortunately, I don't know anyone who would purchase health insurance as opposed to simply being added onto a spouse's policy.

As stated before, I believe other factors in my position are probable at odds with IRS regulations. They could just about disqualify anyone with their original position that a policy had to be written in the name of the business.

Thanks for the correction. I appreciate knowing I'm wrong when I'm wrong.

Regards, Ron Jordan

[Bonnie]

I disagree. The IRS instructions are very specific: "But if you were also eligivle to participate in any subsidized health plan maintained by you or your spouse's employer for any month or part of a month in 2006, amounts paid for health insurance coverage for that month cannot be used to figure the deduction."

It says "...you were also eligible.." It doesn't say that you "MUST".

The 3 months I am questioning are not for months the she was eligible to be covered under spouse's plan. The months she was eligible to be covered under his plan, I know she cannot claim. I am questioning the 3 months when spouse was changing jobs and there was no insurance available through an employer, but they were elibible for COBRA coverage based on previous job. I think she can claim those 3 months but just wanted another opinion.

Thanks
Bonnie

[sandysea]

I would say...

COBRA is not subsidized by the employer nor is it for an "employee"...so I would certainly take the 3 months when the spouse could have had the cobra but did not. The cobra charges you exclusively and the former employer does not contribute to this, so it is plain and simple a deduction anyway on the schedule A. Since the spouse has a self employment insurance plan and no employer is allowing the unemployed spouse to pay into subsidized insurance, I think this could be argued well with IRS if it ever became an issue which I do not think it would

[Bonnie]

COBRA is not subsidized by the employer nor is it for an "employee"...so I would certainly take the 3 months when the spouse could have had the cobra but did not. The cobra charges you exclusively and the former employer does not contribute to this, so it is plain and simple a deduction anyway on the schedule A. Since the spouse has a self employment insurance plan and no employer is allowing the unemployed spouse to pay into subsidized insurance, I think this could be argued well with IRS if it ever became an issue which I do not think it would

Thank you. That was my thought too, just wanted confirmation from someone else.

[Joe Btfsplk]

Retiree Insurance

I am covered by a retiree benefit for which I pay about $ 60 a month for health insurance that would cost about $ 1000 per month if I had to buy it any other way.

I am not an 'employee' of the company which provides this benefit--and never have been an employee of the company since I was employed by a company they took over.

Since I am self-employed and neither my wife or I are eligible for coverage by any place for which we are CURRENT employees, would anyone consider my $ 60 per month as deductible since I am now self-employed?

[DixieEA]

Good Question

Joe, I have often wondered if you could do this. Some time ago when I did research it,
I was told by someone that If your employees do not have the right to purchase this
retirement ins at same rate then you are not eligible to use it. I have not seen this
in the regulations, but it kind of makes sense. Maybe someone else can give a
definite answer.

DixieEA

[Joe Btfsplk]

Joe, I have often wondered if you could do this. Some time ago when I did research it,
I was told by someone that If your employees do not have the right to purchase this
retirement ins at same rate then you are not eligible to use it. I have not seen this
in the regulations, but it kind of makes sense. Maybe someone else can give a
definite answer.

DixieEA

I have no employees so that would not be a factor. If I deducted it, it is very unlikely that the IRS would question it. However, I have refrained from doing so since the intent of the law seems to be geared toward people who have to pay full price. Otherwise, why not let employees take a deduction on page 1 of their 1040 for their share of the cost which would probably be about the same amount I pay?

Of course, technically, I do pay the full cost and am not an employee of the company that pays the lion's share of the cost. Since they can hang you on a technicality--why not hang them on a technicality?