Discussion:Self-employed Health Deduction & COBRA

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Discussion Forum Index --> Tax Questions --> Self-employed Health Deduction & COBRA

Fondawise (talk|edits) said:

9 February 2007

I just finished reading the info on the self employed and the controversial deduction of Med B premium. I have a situation with someone who paid COBRA while self employed. Do you think this qualifies for 1040, line 29 deduction if all other requirements are met?

JR1 (talk|edits) said:

February 9, 2007
Sure.

Sw (talk|edits) said:

February 9, 2007
What if the wife is paying the CORBA and the husband is selfemployed.

JR1 (talk|edits) said:

February 9, 2007
My understanding has been that if you (wife would be included in you) are paying for insurance while self employed, it counts. I recall a discussion here where a couple others understood that differently...

Fondawise (talk|edits) said:

9 February 2007
Thank you JR1 for taking the time to answer my question.

Bell (talk|edits) said:

11 February 2007
I read somewhere that cobra was specifically not eligible for the Line 29 deduction.

Mauro (talk|edits) said:

11 February 2007
Bell it all depends - because health insurance does not qualify as Self Employed if the cost is subsidized by an employer. Also, if the taxpayer is paying the full cost, then it is deductible, finally if the cost is being subsidized by the prior employer then it does not qualify.

PVVCPA (talk|edits) said:

February 20, 2007
Is Cobra considered subsidized? The premiums are priced differently because it part of a group plan? I think this is really dumb question, because the premiums are probably higher because it is part of a group plan. But I just wanted to throw the question out there. Please refrain from using the words "stupid" or "idiot" when replying.

Gmacdon167 (talk|edits) said:

20 February 2007
I recall reading something about that the plan must be established by the SE individual. Therefore, since the plan was already in effect before his self-employment, it would not qualify.

AHH (talk|edits) said:

20 February 2007
I consider Cobra premiums as being part of a subsidized group plan, therefore NOT deducted on line 29. Sch A, yes.

Yogafan00 (talk|edits) said:

20 February 2007
AHH, yes, but on Sch A it's subject to the 7.5 rule, correct?

Kevinh5 (talk|edits) said:

20 February 2007
only for regular taxes. For Alternative Minimum taxes it is subject to the 10% rule.

Inagpurwala (talk|edits) said:

20 February 2007
Yes it would be deductible on Sch A and subject to 7.5% rule.

IshaqInagpurwala 16:58, 20 February 2007 (CST)

PVVCPA (talk|edits) said:

February 21, 2007
What is it that makes COBRA's NOT qualify for the self-employed health insurance deduction? A COBRA is not subsidized employer plan. The employer is now a former employer and there is no subsidization, as the entire premiums are being funded by the individual.

Is it because the plan is not in the name of the self-employed individual? (per Letter Ruling 200524001)

Riley2 (talk|edits) said:

21 February 2007
I agree with PVVCPA, there is no subsidy in most cases. Under COBRA, the employer is allowed to charge the former employee 102% of the employer's cost for coverage. Also, the Tax Court, without defining the word "plan", has ruled that the plan must be established for the business. However, I believe that a policy could be issued under the name of the former employer while being part of a plan that covers the health insurance needs of the employees in general. The Service ruled in Rev. Rul. 61-146 that a plan could consist of reimbursement of premiums paid on individual insurance policies.

PVVCPA (talk|edits) said:

February 21, 2007
Letter Ruling 200524001 requires that the plan be in the name of the self-employed individual. A COBRA is in the name of the former employer's group.

Fondawise (talk|edits) said:

22 February 2007
Thanks for all the feedback. I am hearing that I must take the COBRA payments on Sch A and not 1040, line 29, because the COBRA insurance is a group policy in the name of the former employer and not in the name of the sole proprietor. It makes sense, but now I have to tell the client he has a balance due and not a refund.

PVVCPA (talk|edits) said:

February 22, 2007
Fondawise, I'm still not entirely convinced that a COBRA doesn't qualify.

Why don't you deduct it, disclose on Form 8275, and let us know how the audit goes.

Riley2 (talk|edits) said:

22 February 2007
Fondawise, there is nothing in the law that says SE health insurance must be purchased under the name of the taxpayer. The law simply states that the plan must be established with respect to the taxpayer's trade or business. Therefore, a plan can be set up by the taxpayer to purchase insurance coverage through various providers and the plan would satisfy the requirement of a "plan." A policy is simply one component of a "plan."

Fondawise (talk|edits) said:

22 February 2007
I am looking again at Headliner Volume 163 May 15, 2006. Copy and paste the address below if you care to. The phrase in bold is what I am concerned about. If it is not in the name of the business and not in the name of the sole proprietor then ......... I lean on the conservative side of tax preparation, don't really want to ask for a challenge.

"In many solely owned businesses, the owner of the business will purchase health insurance in his or her own name versus the name of the business. The type of entity may greatly affect where this insurance premium expense may be deducted on the individual’s personal income tax return.

In Chief Counsel Advice (CCA) 200524001, it was held that a self-employed individual who is a sole proprietor and who purchases health insurance in his or her own name may treat that as health insurance purchased in the name of the sole proprietor business. As such, the insurance would qualify under the provisions of IRC §162(l). Assuming the self-employed individual meets the other provisions of IRC §162(l), the individual may claim a deduction for the insurance premiums in arriving at his or her adjusted gross income; also referred to as an above-the-line deduction."

www.irs.gov/businesses/small/article/0,,id=157049,00.html

A series of posts from 2008 have been moved to this related discussion on the consumer forum.

Redtopaz1105 (talk|edits) said:

10 April 2008
Yes you cn take it on line 29 of 1040 as long as you nor wife can get group insurance from an employer-per Taxprep 101..

What about an employee..he has his own coverage ... wife is self employed she has an HSA.. I am getting hung up on the definition in my tax package that says "do not include any payments from any month you were eligible to participate in a health plan subsidized by you or your spouses employer"

Am I interpreting this statement correctly.. ie if I am self employed and I reimbursed my husbands employer I could NOT take that amount paid to the employer as an above the line but as a Schedule A ??

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