SEHI, spouse's retiree premiums

Technical topics regarding tax preparation.
#1
EADave  
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Hello all, I've searched, I've pondered, I've researched, I've been through the CCAs and the Tax Court Memos, etc, and all I do is find that no one knows the definitive answer to this conundrum.

TP is retiring and will purchase healthcare premiums through his former employer. He will purchase Cobra for about 7 months (partially subsidized by employer), then it will switch to a regular healthcare plan his employer offers (not subsidized by his employer). He will not work, but will earn rental income (Sch E).

His wife is self-employed and will be covered by TP's healthcare plan. Can she take a SEHI deduction for the premiums he pays? Policy will be in his name only, with the wife as a covered member of the plan.

I've read all about Medicare coverage for both TP and Spouse can be deducted as SEHI, etc. I just need some updated (newer than 2015), guidance if it exists, or is this just a grey area where we need to tread lightly?

Thank you!
 

#2
lucyko  
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It is my understanding that the wife who is the self employed individual will not be able to take the self employed health insurance deduction for health insurance premiums paid by husbands health care plan. Two reasons .... 1) Health insurance coverage for first 7 months is partially subsidized by employer so not allowed 2) More importantly for self employed's filing Schedule C the policy must be in the name of the business or the self employed individual . Clearly this policy is in the name of the husband which has no connection to the business .SEE IRC 162 (1)(2)(A) and Ltr. ruling 200524001.

If you alter the facts and have both husband and wife operating the business the the insurance premiums starting after the Cobra subsidization ends would qualify. This would require you to do 2 separate Schedule C's .
 

#3
EADave  
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My understanding of the Code and Letter Ruling's language agrees with your response, thank you for the confirmation.

If the wife's income from Self Employment were substantial, I would recommend the splitting of the Schedule Cs or even have the wife hire the husband and setup an HRA. This might be a thought for the future.

Thank you!
 

#4
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If the wife's income from Self Employment were substantial, I would recommend the splitting of the Schedule Cs or even have the wife hire the husband and setup an HRA. This might be a thought for the future


I know this is not your fact pattern, but I'm throwing out another question. If the wife hires the husband and another employee, could an HRA that reimburses insurance premiums/medical expenses be set up for just the husband and be compliant under ACA? Can she exclude the other employee if not under 25, not part-time, not seasonal, etc.?

What if the insurance which covers the husband is through the former employer of the wife, and she is covered under a separate policy? Would that be SEHI qualified or eligible to be reimbursed by the employer under a reimbursement plan?
Last edited by Yellowdog on 16-Nov-2018 5:03pm, edited 1 time in total.
 

#5
Chay  
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lucyko wrote:More importantly for self employed's filing Schedule C the policy must be in the name of the business or the self employed individual . Clearly this policy is in the name of the husband which has no connection to the business .SEE IRC 162 (1)(2)(A) and Ltr. ruling 200524001.

Neither IRC 162(l)(2)(A), ltr. ruling 200524001, nor any other authoritative source states that the policy must be in the name of the business or the self employed individual. The letter ruling and other IRS sources merely offer that the policy may be in the name of the business or the self-employed individual. This is a very important distinction.

The statute itself implies that a "plan providing the medical care coverage" must be established "with respect to" a trade or business. It doesn't appear to contemplate the name that is registered with an insurance company at all.
 

#6
EZTAX  
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I think this had been discussed in the past. Agree that cannot take when under cobra.

But I believe Medicare payments paid from the spouses SS count and these are not under the "company or owner name". I hope others will weigh in.
 

#7
Noobie  
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Agree with EZ.
 

#8
Jake  
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Agree with EZ in regard to spouse's Part B, Part D (and also Long Term Care).
COBRA is generally not subsidized, logically* it seems like that should be o.k. but that is beyond my expertise.
Then there are Afforable Care Act premiums. I have included those in SEHI for the self employed - never had a situation where such person also had a spouse with that coverage.

*Of course logically health insurance should be pretax for all or for none. Even the self employed get screwed compared to a W-2 employee as they get no break on the FICA tax. Whether a 50% income tax bracket is fair is a policy matter. Whether the current differences in the tax treatment of health insurance premiums for W-2 employees, self-employed persons, or retirees is "fair" deserves an "absolutely not" answer.
 

#9
EZTAX  
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I wanted to bump this up again. How many people would deduct cobra payments as SE health insurance deduction if it has been determined that the ex-employer is not subsidizing the plan?

Thanks.
 

#10
Chay  
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As you may have gathered from my post #5, my view of the SEHI deduction is rather expansive. I would deduct the cobra payments.
 

#11
makbo  
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Chay wrote:As you may have gathered from my post #5, my view of the SEHI deduction is rather expansive.

I recall that Jeff-Ohio has argued that you are not eligible to participate in employer-sponsored coverage if you could have been covered by a spouse's employer plan but deliberately chose not to be so covered. Now that's expansive!

"You can't deduct payments for medical insurance for any month in which you were eligible to participate in a health plan subsidized by your employer, your spouse's employer, or an employer of your dependent or your child under age 27 at the end of 2018." [Pub 17]
 


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