self employed health insurance

[nate]

Self employed health insurance deducion. In the shaded section entitled "Did You Know" you state that a sole proprietor can purchase health insurance coverage under his personal name but an S corporation must purchase the insurance coverage through the S corporation as a group plan in order for shareholders who are employees to take the deduction. What about a partnership where a partner, who is considered self employed since he pays self employment tax, purchases the insurance in his own name?

[JoshinNC]

I don't understand either of the available answers

But, mine would be that a plan purchased by the partner is deductible subject to 7.5% of AGI on Sch. A and a plan purchased by the partnership is deductible to the partnership and the amount paid by the partnership is a guaranteed payment to the partner, which is then deductible under the SE Health Ins. rules.

[dsi]

Isn't it interesting that a > 2% SH of an S-corp avoids social security taxes on their health insurance, yet a sole proprietor and a partner can't avoid the social security tax on their health insurance premiums?

With regards to the policy being in the name of the individual -vs- the PS, I don't know. I would guess that it might be acceptable?

[dsi]

And, yes I understand that the regs about being in the name of the S-corp/PS, but isn't theIRS being a little forgiving about that?

[Luis Mopeo]

The key to this issue is code section 162(l), which is the dollar limitation "with respect to which the plan providing the medical care coverage is established."

The deduction is limited to business income from the business under which the plan is established. There was a revenue ruling not long ago that basically said that a sole proprietorship is one in the same with the individual for this purpose. Therefore the plan could be in the sole proprietor's name and still qualify under the "established under the business" rule.

That's not true for S corporations and partnerships. The "Did You Know" in TTB talks about S corporations, but the same thing would apply to partnerships. Health benefits paid on behalf of a partner by a partnership are treated as guaranteed payments to the partner and are deductible on Form 1040. However, a partner who takes out a plan in their own name does not meet the the business income limit, and does not meet the "established under the business" rule. A policy taken out separately by the partner will not qualify.

[Brad Imsdahl]

That's not true for S corporations and partnerships. The "Did You Know" in TTB talks about S corporations, but the same thing would apply to partnerships.

Not necessarily.

TTB, page 5-10, Did You Know, provides two citations for the information presented. Neither citation specifically addresses how the rule applies to partners in a partnership.

You certainly can try to apply logic and guess how the IRS will rule, but TTB only mentions sole proprietors and S corporation shareholders because those are the only two the IRS specifically addressed.

And many commentators out right disagree with the logic in the IRS Headliner concerning S corporations, which basically has next to no authority at all.

TTB cannot comment on partners in a partnership because there isn’t anything to base it on.