Self employed health insurance deduction if coverage was through a former employer's early retirement medical plan?

[bluecar334]

In 2020,  my wife and I were both self-employed independent contractors.   My wife also worked 10-15 hours per week for a local non-profit as office staff and was not offered any health insurance benefits.   We plan to file as married filing jointly.

Since January 1, 2020, our medical insurance coverage has been through my former employer's early retirement plan.   The early retirement medical coverage extends favorable rates to retirees for several years as an incentive to retire early. 

My 2020 1095-C statement from my former employer shows the code 1G for all months:   "1G. You were NOT a full-time employee for any month of the calendar year but were enrolled in self-insured employer-sponsored coverage for one or more months of the calendar year. This code will be entered in the All 12 Months box or in the separate monthly boxes for all 12 calendar months on line 14."

The medical insurance premiums we paid in 2020 were not pre-tax.   While I got a final severance check in Jan 2020 the earnings statement shows no pre-tax deductions for health care insurance.  

On one hand, these medical insurance premiums are not pre-tax.  But on the other hand, it's employer- sponsored/subsidized coverage.     

Can we claim these premiums as a self-employed health insurance deduction?   

[MaryM428 · Accepted solution]

Because both you and your wife were self-employed and paid for the insurance with post-tax funds, it is a legitimate deduction for your self-employed business expenses.  It does not matter that the premiums were employer- sponsored/subsidized coverage.    

The fact that you paid with post-tax dollars is what makes the premiums self-employment expense eligible.  Be careful not to take the same deduction on your self-employment expenses and on your personal expenses.  In most cases, you will have a more favorable return with self-employment, then with using them as an itemized deduction on Schedule A.

[Tjl925]

I have kinda the question.  I am retired and my premiums are deducted out of my pension, but have a small business.  Can I deduct the amount of my premiums up to where my business does not show a loss?  The other caveat is that I was a Public Safety Officer and I get a credit by them paying my health insurance through my pension.

[DaveF1006]

Yes, you can treat these as self-employed health insurance premiums as the IRS does not expressly prohibit it. If you take the Public Safety officer deduction also, be sure you don't include that amount in your Self-Employed Insurance Expense that you are planning to claim.

Being a retired Public Safety Officer will allow you  a tax deduction up to $3000/annually.

@Tjl925 

[ Edited 03/31/22|01:38 PM PST]

[Tjl925]

I'm a little confused.  I got one of your answers saying technically no the the other one saying yes?  Can I claim half with my pension and half with my business?  It would be about $15K each and be about the point where I didn't lose money on my business.

[Tjl925]

Also, with my small business I made enough to contribute to my Roth.  By claiming the medical expenses will and making my business show as a zero profit will that screw up my ability to contribute to my Roth.  Otherwise I do not have enough income outside of my retirement income to put towards mine and my wifes Roth.

[DaveF1006]

I revised my earlier answer after doing more research. My question to you is, did you pay $30,000 total in Health care insurance premiums and you are trying to claim a $15K deduction for your business and $15K from your pension? If so, you can only deduct a maximum of $3000 from your retirement pension as a retired Public Safety Officer.

As far as contributing to the Roth, you may consider only deducting the amount of your premiums that reduce your taxable compensation to the minimum contribution limits.  In this case, if you contribute $7000 for yourself and your wife, you may wish to report $14,000 as net income for the year so that you can contribute to your Roth, without penalties.

@Tjl925

[Tjl925]

Thank you,  Yes I was going to do 15K for each until you answered my question about the Roth.  I will make sure I have 14K of earned income.  I was aware that 3K for Public Safety Officer, but also knew that I couldn't take more medical expenses than I earned in my business so that is where the 15K came from.  I didn't make that much as it is a side job.