Newly retired, paying COBRA but self-employed. Are my insurance premiums deductible from AGI or as medical expense?

[benwintonaz]

I retired in early 2021 from a job that gave me a W2. At that time, I converted health insurance to COBRA, which I am still on.  I started drawing a pension. But, at the same time, I continued as an independent contractor for a client, as a self-employed individual that receives only a 1099 from the contractor work.

So, I am not sure if my COBRA premiums should be part of my medical expenses and subjected to the 7.5 percent of AGI limit. Or, if the entirety of all premiums are tax deductible for my insurance as a self-employed individual. It's complicated to me. 

I believe I can deduct all my health insurance premiums from my gross income because I am self-employed (even though I also am drawing a pension from a former employer). Is that correct, or should I list those premiums as part of the medical expenses that are limited to 7.5 percent of my adjusted gross income?

[Mike9241]

COBRA health insurance is deductible as a medical expense but not as self-employed health insurance. SE health insurance must be through a plan in the name of your business or you personally. COBRA is maintained through your former employer and thus doesn't qualify. your pension has nothing to do with the medical insurance deduction.

[benwintonaz]

Well, now that you mention it, that makes sense. My insurance card issued through the COBRA provider still shows the logo of my former employer on it, even though I am paying 100 percent of the entire premium now. 

When I checked old pay stubs, there is no discount offered to me -- it is the full premium, meaning both what the former employer used to pay, plus my share that used to be deducted from my paycheck.

Darn. Almost doesn't seem right, since the only way I could afford to retire was to rev up my sole-proprietorship, and simply went with the most affordable health-care option, which happened to be COBRA at the time. (Even less expensive than the Health Care Marketplace.)

[TaxTim1]

Understand you frustration.  Just in case things change for you in the future, check out Pub 535, under Insurance, for the criteria for premiums to be deductible as noted by @Mike9241.

https://www.irs.gov/publications/p535#en_US_2016_publink[phone number removed]

Hope this helps.

[Opus 17]

@benwintonaz 

You are still receiving a “benefit“ in that the employer is able to negotiate a better rate for their coverage, including COBRA, than you would be able to negotiate on your own through the marketplace.  You can still deduct the cobra premiums as medical expenses subject to the 7.5% limitation. It may be that a plan in your own name that qualified for the self-employment insurance deduction, would be financially better in the long run even though the gross premiums were higher. This would require some complex calculation testing, and you may be out of luck until the next open enrollment period. But, it’s something to think about in the future.