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If self-employed, collecting Social Security and covered by spouse’s health insurance policy, can Medicare Part B premiums be deducted on Schedule C as self-employed health insurance?

Thank you & Regards
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If self-employed, collecting Social Security and covered by spouse’s health insurance policy, can Medicare Part B premiums be deducted on Schedule C as self-employed health insurance?

No. That's not where you deduct self-employed health insurance anyway, but even on the right line (Adjusted Gross Income on page 1 of the 1040) Medicare premiums don't count.

Phil
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but even on the right line (Adjusted Gross Income on page 1 of the 1040) Medicare premiums don't count.

Breaking news, Phil.

The instructions for form 1040 now say that Medicare part B premiums CAN be used as self employed health insurance. And I've seen an e-mail from an IRS employee that says Pub 535 will be updated in March (for the 2010 year - nothing quite like timely work) to reflect this change in position.

--Peter
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The instructions for form 1040 now say that Medicare part B premiums CAN be used as self employed health insurance.

Even when the self-employed person is covered by an employer-sponsored health plan? Wow!

Phil
Rule Your Retirement Home Fool
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The instructions for form 1040 now say that Medicare part B premiums CAN be used as self employed health insurance. And I've seen an e-mail from an IRS employee that says Pub 535 will be updated in March (for the 2010 year - nothing quite like timely work) to reflect this change in position.

I'm catching up with e-mails that piled up while I was on vacation and have come across a discussion on a Yahoo mailing list. I've seen what I assume is the same e-mail that you reference. One thing I haven't seen yet is anything remotely resembling a reason for IRS's change in position. Have you seen anything? There was a reference to the health care legislation in that IRS e-mail, but it had to do with children under age 27, which didn't make a lot of sense in the context of the specific question.

Going back to OP's situation, I don't know that I'd rely too much on this since OP doesn't have any insurance established for the Schedule C business. (OP is covered by his wife's employer-sponsored insurance.) We all know I'm more conservative than you on these things, but what are your thoughts about that specific issue?

Phil
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Going back to OP's situation, I don't know that I'd rely too much on this since OP doesn't have any insurance established for the Schedule C business. (OP is covered by his wife's employer-sponsored insurance.) We all know I'm more conservative than you on these things, but what are your thoughts about that specific issue?

That really cuts to the crux of the issue if you ask me. (And I think you did!)

To be deductible as self-employed health insurance, you have to establish the insurance as a part of the overall plan for your business. I can certainly see that it is possible to use medicare as part of your insurance plan - it's just so much more cost-effective than a private plan for primary care. And you can always supplement it with additional insurance if you want more coverage.

I'd hesitate to take medicare as SE health insurance if someone over 65 just started a bit of SE work to keep busy during retirement. On the other hand, someone who has been self-employed for years and just happens to cross that magic 65 age and start on medicare I think would have a better argument for calling that SE health insurance. Particularly if they had been paying for health insurance all along and are just switching from a private plan to medicare.

--Peter
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(Phil:) One thing I haven't seen yet is anything remotely resembling a reason for IRS's change in position. Have you seen anything? There was a reference to the health care legislation in that IRS e-mail, but it had to do with children under age 27, which didn't make a lot of sense in the context of the specific question.

You're right. My take on it is that IRS finally got it right.

Seriously, their position always was a little weak on this. And our more authoritative reference sources just quote the IRS 1040 instructions, which have changed since last year, and that is kind of weird.

They had previously come to the realization that for a lot of self-employed folks with no employees, the only way to buy health insurance is with an individual policy, which would be in their own name. That happened in 2005, when they issued a Chief Counsel Advisory Memo, allowing an individual policy as being "established in the name of the business", where the sole proprietor and the business were one and the same.

There was a pre-existing (the word comes to mind with health insurance) rule, from 1995, about Medicare premiums as not qualifying since it was a govt. program, and therefore couldn't be "established in the name of the business". OK, that seemed logical.

But that meant, therefore, that a self-employed business owner, over 65 years of age, whose most likely option was to get Medicare plus a supplement policy, could deduct the supplement policy premiums but not the Medicare premiums. And they have now moved to eliminate that inconsistency.

Maybe we shouldn't ask questions too loudly. They might think about it again.

Bill
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There was a pre-existing (the word comes to mind with health insurance) rule, from 1995, about Medicare premiums as not qualifying since it was a govt. program, and therefore couldn't be "established in the name of the business". OK, that seemed logical.

But that meant, therefore, that a self-employed business owner, over 65 years of age, whose most likely option was to get Medicare plus a supplement policy, could deduct the supplement policy premiums but not the Medicare premiums. And they have now moved to eliminate that inconsistency.


OK, that makes sense when the sole prop has been buying the insurance. What's your take in OP's situation, where the insurance has been subsidized through the spouse's job?

Phil
Rule Your Retirement Home Fool
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OK, that makes sense when the sole prop has been buying the insurance. What's your take in OP's situation, where the insurance has been subsidized through the spouse's job?

Phil
Rule Your Retirement Home Fool

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No, that's clear; if it's an employer-subsidized plan where the employee pays part of the premiums, it doesn't qualify, per the instructions.

But as to the Medicare premiums themselves, I guess I don't see why those don't work for the sole proprietor.

Bill
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The approach to this problem should be that the "PLAN" is to pay premiums for family health insurnace, not the policy chosen for coverage. Per Webster a plan is a method or course of action, not an insurance policy. I doubt if the IRS has ever denied this deduction. Merely paying a premium would establish a plan.

ed
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