Schedule K-1, boxes 4a and 4b provide for entry of guaranteed payments made by the partnership to partners. There are two scenarios - guaranteed payments made based on partners services provided and the other based on the partners supply of capital. Under the services category, the partnership may include medical insurance premiums made by the partnership for partners. . My questions is this; is a partnerships reimbursement of Medicare Part B premiums to each partner a guaranteed payment per Box 4a on Schedule K-1? This is an important question because if the answer is yes, each partner gets a medical insurance premium deduction on their individual 1040 return while at the same time the partnerships ordinary business income (Box 1) is reduced. So, is Medicare Part B premium reimbursement by the partnership a qualified medical insurance premium guaranteed payment per Box 4a?
A partner can pay the premiums directly and be reimbursed by the partnership, or the partnership can pay the premiums. In either case, the premiums must be reported to the partner as guaranteed payments, and the partner must report the guaranteed payments as gross income on his Form 1040.
Agree. The K-1 form reports the guarantee payment on line 4c. The partner reports the total income including ordinary income (line 1) plus the guarantee payment (line 4c) which adds to what appears as self employment income on line 14A. So the 1040 gets the partnership income which includes the guarantee payment. What happens is that the 1040 Schedule 1 Adjustment to Income now includes the self employ health insurance deduction on line 16 which transfers to 1040 line 8a. That causes the Social Security taxable amount to be reduced (due to the line 8a deduction). Bottom line is that even though the 1040 income shows the guarantee payment as income, my tax decreases since the Social Security taxable amount decreases. Do you think this is what the IRS intends to happen? Hard question, I know, but it makes a sizable difference in the net tax. Thanks for any insight you can provide.