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| Self-employed
Health Insurance Plan Deduction |
Question:
Self-employed
Health Insurance Plan Deduction
has increased to 100%. I just
ran across another aspect of this
that may be of interest.
The health insurance plan must be
set up under the self-employed business.
For example, if the self-employed
person is covered under a spouse's
plan, or if the self-employed person
is retired from another business and
the plan is in connection to that
other business, the deduction would
not apply to premiums paid to that
plan.
I believe this is correct. If
anyone has anything to add, please
do so.
Answer:
-The health insurance plan must be
set up under the self-employed -business.
Well, yes and no. The
only real reference to the plan being
set up "under the business"
is found in IRC §162(l)(2)(A) which
provides the deduction shall be limited
to the income under which the plan
is established. It's interesting
because the provision enabling the
deduction in general (found under
§162(l)(1)) doesn't ever mention a
plan.
Nevertheless, it's important to note
that a "plan" under the
rules for §104's general medical insurance
exclusion provision has been very
broadly interpreted by the IRS, and
has included plans that reimbursed
employees for insurance they acquired
on their own. Add to that the
fact that there are no nondiscrimination
requirements either in §104 or here,
and you may have a requirement with
no real teeth in it--it would seem
acceptable for the employer to merely
state it was going to adopt the individually
underwritten policy of the owner.
-For example, if the self-employed
person is covered under a -spouse's
plan, That's a bigger problem *if*
the spouse's plan is subsidized. But,
in that case, mere eligibility for
coverage is enough to disallow the
deduction. See IRC §162(l)(2)(B).
That said, the IRS has never chosen
to give us regulations telling us
what is "eligibility" nor
what is "subsidized" for
these purposes. For instance,
if an employer subsidizes the coverage
for the employee but requires an employee
who wants family coverage to "ante
up" the entire marginal cost
of family coverage, is that a subsidized
plan for this purpose? Or must
the coverage of the self-employed
person specifically be subsidized?
Additionally, some have even argued
that if you must pay for the coverage
in order to get it, you are not *eligible*
to be covered for any month for which
you didn't send in the check. While
I think that makes the whole provision
irrelevant (under that theory you
could argue the question is just whether
the person *is* covered rather than
whether they are eligible), since
the IRS has continued to leave this
one dangling the question would become
whether that is a reasonable interpretation--not
whether it's the best or most likely
one. I'm still deciding on its
reasonability <grin-.
- or if the self-employed person is
retired from another -business and
the plan is in connection to that
other business, the -deduction would
not apply to premiums paid to that
plan. I would argue the above is in
error. The only other requirement
is that you cannot be covered by *employer's*
plan. Note that Congress did
not say former employer, but rather
used the present tense of the word.
For that reason, I would argue
that retiree coverage payments or
even COBRA coverage payments would
be eligible for this deduction. Again,
the IRS *could* issue regulations
that would call for former employers
to "count" for these purposes,
but in this case I do not believe
it is unreasonable to use the plain
language of the statute until such
time as the IRS can be bothered to
actually issue some regulations on
this point <grin-.
Because no regulations have been issued,
this is an area of the law that *could*
change dramatically on short notice
(much like we saw with the sale of
home issues when the IRS issued regulations
on December 24 that changed a number
of the rules--mainly in a taxpayer
friendly fashion). But right
now the above appears, to me, to be
the current state of affairs.
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