Confusion on deduction for long term care insurance when self-employed

[DX-hound]

For the 2023 tax year, TurboTax is trying to grab a deduction for my long term care insurance premiums and including a Form 7206.  This has not happened in previous years and I thought I really don't qualify for the deduction, but it's confusing.  Here's my situation:

• Retired federal employee under the older CSRS retirement system.
• Now do part time engineering consulting as an independent contractor for both government and non-government clients.  Receive 1099-NEC's for my consultant income.
• Covered by Medicare (primary) plus my federal retiree health insurance (secondary) for basic medical and hospital.
• Have long term care insurance offered to federal workers (FLTCIP) but pay all the premiums.  No government subsidy. Started the insurance before I retired. 
• My wife is still working and covered by employee-subsidized health insurance.  No long term care insurance (OPM suspended new applications because premium costs are out of control).

Form 7206 instructions state, under limitations, that you cannot deduct:

• Amounts for any month you were eligible to participate in a health plan subsidized by your employer or your spouse's employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2023.

OK....so since my long term care insurance is not subsidized, but my and my wife's basic health insurance is subsidized, do I get the deduction or not.  Perhaps long term care insurance does not fall under the IRS definition of a "health plan subsidized by your employer or your spouse's employer?"   For that matter, am I really "self-employed" in the eyes of the IRS via my part time consulting work while I receive a federal retirement pension?  

Thanks

[BillM223]

so since my long term care insurance is not subsidized, but my and my wife's basic health insurance is subsidized, do I get the deduction or not.  

No, you do not get the self-employment deduction. Here is what the IRS says: "You can’t take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you didn’t actually participate. " Instructions for 7206.

Perhaps long term care insurance does not fall under the IRS definition of a "health plan subsidized by your employer or your spouse's employer?" 

No, LTC is not considered to be such a health plan. A health plan follows the definition of a health plan in the ACA, where it has minimum standards for what qualifies to be a health plan.

"For that matter, am I really "self-employed" in the eyes of the IRS via my part time consulting work while I receive a federal retirement pension?  "

Yes, you are definitely self-employed. You report this consulting work on Schedule C, right? The fact that you are receiving a pension is not relevant to this issue.

[DX-hound]

Thanks.  I was thinking I would not be able to take the deduction and that's how I proceeded for this tax year.  But I began to second-guess when I read the following from the American Association for Long Term Care Insurance site,

https://www.aaltci.org/long-term-care-insurance/learning-center/tax-for-business.php#self 

"A self-employed individual can deduct 100% of his/her out-of-pocket long-term care insurance premiums, up to the Eligible Premium amounts listed above [IRC 162(l)]. The portion of LTCi premiums that exceeds the Eligible Premium (see Table 1) amount is not deductible as a medical expense. The deductible amount includes eligible premiums paid for spouses and dependents [IRC 162(l)]. It is not necessary to meet thresholds in order to take this deduction.

However, a self-employed individual may not deduct LTCi premiums during any calendar month in which he/she or his/her spouse is eligible to participate in a subsidized LTCi plan (where the employer pays all or part of the premiums for LTCi)."

The paragraph in bold font seems to imply a distinction between "medical insurance" and "long term care insurance."  In other words, having a subsidized health insurance plan has no effect on being able to take the deduction for unsubdizied LTCi plan premiums.  

[DX-hound]

Now I'm really confused.  The answer below was just received from a benefits expert at the National Active and Retired Federal Employee Association.   According to NARFE,  being self-employed now, can not only take a deduction for my long term care insurance premiums but my Medicare premiums as well.

The box score so far is two saying I can't and two saying I can. 

------------------------------------------------------

Thanks for your NARFE inquiry on taxation of LTC premiums. Yes, if you are self-employed, you can deduct on your federal taxes your FLTCIP premiums up to the limits noted below which are based on your age.

https://www.aaltci.org/long-term-care-insurance/learning-center/tax-for-business.php#:~:text=A%20sel...

Tax deductible long-term care insurance tax limits-LTC federal tax limits state deductions for long ...

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www.aaltci.org

https://apps.irs.gov/app/vita/content/00/00_25_005.jsp

 You also asked about deducting health insurance premiums for self-employed adults. Please see IRS instructions below.

https://www.irs.gov/instructions/i7206#:~:t

Use Form 7206 to determine any amount of the self-employed health insurance deduction you may be able to report on Schedule 1 (Form 1040), line 17.

You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependent

[MonikaK1]

From my reading of your situation, the key factors in the references provided in this thread in determining whether you can deduct your LTCI as self-employed health insurance are whether your employer or spouse's employer offers such a plan and whether it is subsidized. 

If the premiums in the plans available to you/your spouse through an employer are not subsidized, and the policy meets the other requirements in the IRS Instructions for Form 7206, then you can deduct the premiums as self-employed health insurance.