Discussion:Cobra payments considered SE health Insurance?

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Discussion Forum Index --> Tax Questions --> Cobra payments considered SE health Insurance?

TOMSAT (talk|edits) said:

16 March 2007
I have 2 new cases that the husbands got fired/resigned from work and set up a business. one is LLC and other one is partnership.

each one paid in 2006 for most of the year cobra payments for themselves and for the entire family. Can they put it in the adjustment to income? What would be the appropriate treatment? Does it make any change if the wifr is a sole S/H in her S corp (diferent business from her husband)?

Thank you

JR1 (talk|edits) said:

March 16, 2007
Our consensus seems to be yes. Search on Cobra tho' and you'll find a couple threads. And a couple who disagree.

TOMSAT (talk|edits) said:

16 March 2007
Thank you

Riley2 (talk|edits) said:

16 March 2007
The Service issued a CCA or SCA indicating that COBRA payments are not a "subsidized health plan". Therefore, I would see no problem with using COBRA payments for the SE insurance deduction.

Jake (talk|edits) said:

18 March 2007
My wife has Long Term Care insurance through her employer. The employer pays the full cost of a $1,000 a month benefit for her. For anything over that for her, and for my coverage, we pay the full boat. My view is that her payment for an added $2,000 a month benefit and my coverage is therefore not subsidized and I can take it as a self emplyment medical insurance dedcution on the front of the 1040.

Actionbsns (talk|edits) said:

18 March 2007
Jake, Long Term Care insurance is not health insurance, it's a specific type of insurance and has nothing to do with medical care per c'est. Not like the normal health insurance or hospital insurance.

Death&Taxes (talk|edits) said:

18 March 2007
But Long term care insurance qualifies....see Quickfinder p 6-7.

PVVCPA (talk|edits) said:

March 18, 2007
TOMSAT. See Discussion:Self-employed_Health_Deduction_&_COBRA

Blrgcpa (talk|edits) said:

18 March 2007
If ins may be more expensive if the spouse did not get it through the employer group. The group may have a lower rate because it is a group.

Actionbsns (talk|edits) said:

19 March 2007
Then can I deduct my disability income coverage on the 1040, too? LTC is more like DI coverage in its purpose than health insurance

Kevinh5 (talk|edits) said:

19 March 2007
don't ever deduct disability insurance premiums unless you want the benefits to be taxable

Riley2 (talk|edits) said:

19 March 2007
Jake, you are consdidered to be eligible for participation in a subsidized LTC plan, which does not affect your ablity to claim an SE health insurance plan deduction for a plan that does not cover LTC costs. See Sec. 162(l)(2)(B)(i).

No tax deduction is available for disability insurance premiums under either Sec. 162(l) or Sec. 213. However, disability insurance premiums may be deducted as a non-taxable employee fringe benefit if the benefit is provided to employees who are not S corporation 2% shareholders. If the employee does not include the premium cost in income, the disability benefit itself will be taxable.

Actionbsns (talk|edits) said:

20 March 2007
I am aware of not being able to deduct disability income coverage on the tax return. On the Schedule A there is a line for LTC coverage. When I read about the benefits provided by these contracts, they are more of a disability income coverage than health insurance, they don't provide for medical benefits of any kind like a health insurance contract and the benefits flow to the insured in the same manner as DI benefits. In addition, when insurance agents tout them, they are suggesting using the LTC and saving the DI benefits for other uses. I wouldn't think LTC would fly on the front of the 1040. Riley and Kevin, do you really think they will?

Kevinh5 (talk|edits) said:

20 March 2007
LTC DOES qualify as SEHI, but only the amount that would have been deductible based on the age of the taxpayer. Check it out it's in Code Sec. 162

Actionbsns (talk|edits) said:

20 March 2007
I just read through Sec. 162, and I don't see anything alluding to LTC specifically. It talks about group health plans and reimbursements plans as though requiring payments for actual medical events. By that I mean a surgery, labwork, doctor visits, etc. LTC benefits are paid out in the same way DI benefits are. They are not paid to a hospital, or private nursing facility, nor do you need to provide proof that such costs have been incurred like you do with, say Blue Cross. So how can it be considered to be health insurance? I can see where it would be a group benefit as part of a Cafeteria plan, and deductible to a business, but most single S/H corps or sole proprietors aren't going to qualify for that. If I'm belaboring the point Kevin, you might just generate another one of those smiley things.

As an aside, and this really needs no comment, I did have to give a little chuckle as I was reading it. It kept alluding to New York State Law. When I was in the insurance business and just learning, the sales manager, who was just a step ahead of all us newbies, used to say that if we didn't clearly understand something and were asked about it in an interview, just say it was the way it was because of New York State Law. Kind of funny to find all these years later, there might have been a little truth in what he was saying.

Actionbsns (talk|edits) said:

20 March 2007
Kevin, I just found the specific section that Riley was talking about. I want to look at that other sec 7702, but it looks like this stuff does qualify. Maybe I'll have to get some of that. I've really been dissing this coverage since it's inception back in the mid 90's. At first there were some real shyster companies offering it, then the reputable ones stepped into the field and I know many of them are offering it. The problem I have with it though, is that it is often sold on a very misleading basis. If you have ever gone down the path of Alzheimer's with a parent, you know that 3 years of benefits is going to be a drop in the bucket for the event. Unfortunately, that isn't really brought up during the discussions.

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