Health insurance premium deduction quandary
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Level 1

Health insurance premium deduction quandary

My employer provides me with free BCBS health insurance; I pay no premium.

My wife is self-employed. Through my employer, I also pay the full premium to get my wife on the same plan I'm on. My employer deducts the premium from my post-tax income. They do not offer a cafeteria/Sec. 125 plan.

 

I'm trying to figure out whether the premium I pay for my wife is deductible, and how.

 

My understanding is that because she's self-employed, she could ordinarily deduct premiums for her insurance even without otherwise itemizing deductions (and reaching the 7.5 (or 10?)% of adjusted gross income). However, since it's deducted from my income, I'm confused.

 

One person insists that

  • If she's on my plan, the premium should be deducted from my pre-tax income. [Again, my employer does not offer a cafeteria plan.]
  • If she's on her own plan, she can deduct the premium from her pre-tax income.

I've done as much reading as I can, and looked through other queries on this site. However, the combination of her being self-employed and getting insurance through post-tax deductions from my pay have so far defeated my research skills.

 

I'd appreciate advice, suggestions on where to look, or both.

6 Replies
Level 14

Health insurance premium deduction quandary

A taxpayer is not eligible to use the self-employed health insurance deduction if he/she is eligible to participate in a health insurance plan subsidized by his or her spouse's employer. 

https://taxmap.irs.gov/taxmap/pubs/p502-011.htm

But you can deduct (on Schedule A) the post-tax premiums you pay for her health coverage, subject to the usual IRS limitations on the medical deduction. 

 

 

**Answers are correct to the best of my ability but do not constitute tax or legal advice.**

Level 1

Health insurance premium deduction quandary

Thanks, @TomD8. That's helpful.

 

Publication 502.11 says "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." Since we're paying the full amount of the premium, post-tax, I assume the plan is not subsidized by the spouse's employer, with regard to my wife. (They provide me with full coverage, but don't subsidize her).

 

But it sounds like we could deduct from my wife's income without having to meet the 7.5%/10% AGI limit. Does it matter that we file jointly?

Level 14

Health insurance premium deduction quandary

The term “subsidized” means that at least 50% of the cost of the coverage is paid by the employer (Sec 35(f)(1)).

So you are correct that if your employer is paying less than 50% of the cost,  you're good to go with regard to using the self-employed health insurance deduction for your wife's premiums.  Remember that you can only deduct up to the amount of her business's net profit.

Filing jointly doesn't affect your ability to take this deduction.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.**

Level 1

Health insurance premium deduction quandary

Thanks again. I've been doing more reading in the meantime, and I did find 35(f)(1), but I also found more ambiguous references to which plans can be deducted:

IRS Notice 2008-1 suggests that this deduction may only be available if the plan is established under the trade or business (see also IRS Publication 502).

 

Interesting but not applicable: IRS Memorandum [social security number removed] clarifies that a sole proprietor may deduct premiums for a policy issued in their own name rather than the name of the business. Memorandum [social security number removed] clarifies that deduction of Medicare premiums is permitted for self-employed individuals.

 

Since my wife is on a plan through my employer, it seems like maybe the deduction if over 10% AGI is the only option? Obviously, I'd prefer the straight ahead deduction from her business income (with no 10% limit).

Level 14

Health insurance premium deduction quandary

2008-1 appears to apply only to 2% shareholder-employees of an S-Corp.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.**

Level 1

Health insurance premium deduction quandary

I'm worried by articles like the below, but can't find anything definitive.

https://overnightaccountant.com/blog/article/im-self-employed.-can-i-deduct-my-spouses-health-insura...

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