Health Insurance Premiums Paid by LLC not appearing on Partner K-1

[CajunD]

Hi Folks, 

Last year, my health insurance premiums appeared on my Schedule K-1 in box 13 with a code M. After entering everything for this year, the entry is not appearing. The math is correct elsewhere (SE Earnings Worksheet, Line 4a(3), or K-1 Line 14, for example), but the K-1 is missing this one entry. Does anyone know if there is something in the software that triggers the appearance of this entry?

Thanks.

[PatriciaV]

Please clarify where you entered the insurance premiums and if there are any codes appearing on Schedule K-1 Line 13. Does the amount appear on Form 1065 p104 Line 10? What code (if any) appears on SE Earnings Worksheet Line 4a(3)? 

Our test return shows the medical insurance premiums on Schedule K-1 Line 13 Code M, after entering the full amount under Federal Taxes >> Compensation and Benefits >> Guaranteed Payments.

[CajunD]

Thanks @PatriciaV 

Last year, in 2022, this value is not entered where you indicate, yet the number appears on the K-1. There is a number under Other > Self-Employment Earnings Worksheet > Other Schedule K-1 Items. But I did not recall how that number got there, nor is there any explanation on the UI that indicates such. Entering the value didn't work in the 2023 version of the software.

The K-1's are altered and now the value appears on lines 4a and 4c on the K-1. On the worksheet, line 4a(3) is empty with the value on 4a(1). Line 13 is also populated with the correct code (M).  However, the overall income is changed as well, showing this as an expense (deducted). This doesn't seem right, as the overall expense is deducted on the personal return, and should not be deducted  from the business income. Something still seems wrong. I'm concerned about the inconsistencies between the two years.

Thanks again for your help.

[CajunD]

Doing some more research.

In looking at the instructions for Schedule K-1 from the IRS:

Box 4a. Guaranteed Payments for Services

Guaranteed payments are payments made by a partnership to a partner that are determined without regard to the partnership's income. Generally, amounts on this line aren't passive income, and you should report them on Schedule E (Form 1040), line 28, column (k) (for example, guaranteed payments for personal services).

The fact that these values, when entered as you suggest, appear in two difference places (on Line 4a and Line 13) tells me that something is not correct here. These values are not deductible as an expense by the company (Line 4a) and deductible by the individual on the 1040 (Line 13):

Code M. Amounts paid for medical insurance. Any amounts paid during the tax year for insurance that constitutes medical care for you, your spouse, your dependents, and your children under age 27 who aren't dependents. On Schedule 1 (Form 1040), line 17, you may be allowed to deduct such amounts, even if you don't itemize deductions. If you do itemize deductions, enter on Schedule A (Form 1040), line 1, any amounts not deducted on Schedule 1 (Form 1040), line 17.

BTW, by entering the value in the "Other" section (as noted in previous reply), the SE Worksheet is correct, the value is simply missing from the K-1.

I can override this stuff and make it look like is did last year, but I would like to know what is happening.

Thanks again.

[CajunD]

@PatriciaV  Any comment on the above?

Thanks.

[PatriciaV · Accepted solution]

According to IRS Pub 541 Guaranteed Payments, "Premiums for health insurance paid by a partnership on behalf of a partner, for services as a partner, are treated as guaranteed payments. The partnership can deduct the payments as a business expense, and the partner must include them in gross income. However, if the partnership accounts for insurance paid for a partner as a reduction in distributions to the partner, the partnership cannot deduct the premiums."

From the partnership perspective, the partnership expense (insurance premiums) is equal to the partner's income (guaranteed payments). 

[CajunD]

Thanks @PatriciaV ,

I'll digest and let you know if I have any more questions. The numbers went way off when I did this, but I also wasn't taking it as an expense on the business side, as it is also deductible on the 1040. This is what happened last year, but perhaps I was incorrect then, or th regulations have changes (and thus the logic in TurboTax)

Thanks again,