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SE Health Insurance Deduction: Has the IRS Gotten It Right?
It seems the IRS cannot make up their minds related to the self-employed health insurance deduction. Although it made sense that the Medicare premiums paid by a self-employed individual should be allowed as part of the self-employed health insurance deduction, the IRS said no in their 1040 instruction through 2009. Then for 2010 returns, without any fanfare, they quietly modified the instructions, allowing the self-employed individual to include his or her premium in the computation of the self-employed health insurance deduction and suggested prior year returns where the 3-year statute of limitations had not expired could be amended.
However, the IRS failed to address the issue of whether the spouse's Medicare-B premiums could be included in the deduction. The wording in the 2011 publication was changed by inserting the wording shown in bold below, making it seem that the spouse's Medicare premiums would not be deductible.
“Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction.”
This month, the IRS legal department (Office of the Chief Council) issued an advisory letter announcing that both the self-employed individual's and the self-employed individual's spouse's Medicare premiums can be included when computing the self-employed health insurance deduction. The Council's analysis of the law is as follows (bold emphasis added):
“Medicare is insurance that constitutes medical care under section 162(l). Therefore, all Medicare premiums are similar to other health insurance premiums and can be used to compute the deduction under section 162(l). This rule also extends to Medicare premiums for coverage of a self-employed individual's spouse, dependent, or child (as defined in section 152(f)(1) who as of the end of the taxable year has not attained age 27).”
So in addition to stating that a spouse's Medicare premiums are eligible for the self-employed individual's health insurance deduction (if all other requirements are met), the Chief Council Advisory also clarifies that all Medicare premiums (B, C and D) are eligible.
If you are self-employed and did not claim your or your spouse’s Medicare premiums as part of the SE health insurance deduction in prior years, 2009 through 2011, this office can amend those returns so you can claim a refund. Please call for additional information.
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