This subject relates to the self-employed health insurance deduction as per IRC 162(l). The husband and wife are the taxpayers and the wife is self-employed. She pays her health insurance out of her personal account. The husband is not employed and he pays his health insurance out of a different account. These policies are separate policies no one is dependent on each policy. What arrangement needs to be sought to entitle both taxpayers health insurance deducted on Form 1040, page 1? It seems clear (based on (CCA200524001) proprietor policy can be in personal name but what about the Husband’s policy? Currently, we only deduct her’s on Form 1040 page 1.
Thank you for your inquiry. The short & easy answer is that the way you’re currently doing it is the safest option from an audit perspective if the spouses are set on keeping health insurance in their own names as per IRC Section 162(l). Otherwise, the husband should be on the same health insurance plan as the wife and it should be paid out of the Schedule C to claim both on line 29 of Form 1040. That being said it may be possible to deduct the husband’s health insurance on line 29 of the Form 1040 by arguing the following. If we reference Chief Counsel Advice (CCA) 201228037 it clarified that self-employed individuals may now deduct Medicare premiums from their self-employment income. Why could this be relevant? Because the CCA states that because Medicare is insurance that constitutes medical care under Sec. 162(l). Furthermore, it is similar to other health insurance and its premiums can similarly be deducted, including coverage of a self-employed taxpayer’s spouse and qualifying child or other dependent even though it is not established with respect to the taxpayer’s trade or business. Therefore, it may be possible to argue that the husband’s insurance in his own name should be similarly treated as self-employed health insurance on line 29 of form 1040. It would likely be best that the wife still pays for this policy out of the company funds. We realize that the CCA doesn’t specifically address your client’s situation, but we believe there is some basis for concluding that it is closely related.
References: IRC Section 162(I), CCA200524001, CCA 201228037
More questions? Signup for our tax research service.