COBRA deductible as Self Employed Health Insurance?

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marcopolo
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COBRA deductible as Self Employed Health Insurance?

Post by marcopolo » Fri Feb 08, 2019 10:52 am

I have seen very conflicting advice on this in my various searches. I was hoping to get some advice from the people here that are very knowledgeable about tax matters.

Left employment, Company re-imbursed COBRA for a while, then self-pay COBRA. This would be for 2019 taxes, if that makes a difference.

Are the self-pay months deductible as Self Employed Health Insurance?
Once in a while you get shown the light, in the strangest of places if you look at it right.

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RickBoglehead
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Re: COBRA deductible as Self Employed Health Insurance?

Post by RickBoglehead » Fri Feb 08, 2019 10:58 am

My understanding is no. They can be deducted if you itemize as a medical expense.

But COBRA is an extension of your insurance at your employer and their policy, not yours. It wasn't signed up for as your business, and doesn't have your business name on it, so you cannot deduct it as a self employed health coverage expense.

https://finance.zacks.com/can-cobra-qua ... 10199.html
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MikeG62
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Re: COBRA deductible as Self Employed Health Insurance?

Post by MikeG62 » Fri Feb 08, 2019 11:04 am

marcopolo wrote:
Fri Feb 08, 2019 10:52 am
I have seen very conflicting advice on this in my various searches. I was hoping to get some advice from the people here that are very knowledgeable about tax matters.

Left employment, Company re-imbursed COBRA for a while, then self-pay COBRA. This would be for 2019 taxes, if that makes a difference.

Are the self-pay months deductible as Self Employed Health Insurance?
Marcopolo,

I think this is a grey area (or was back when this thread was active). See the discussion here and especially the material I linked:

viewtopic.php?f=2&t=208254&p=3195358&hi ... A#p3195358

At the end of the day, if it’s grey then it’s your call to make. It would seem in the worst case you could at least pass the “red face test” under audit if not prevail outright.
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JBTX
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Re: COBRA deductible as Self Employed Health Insurance?

Post by JBTX » Fri Feb 08, 2019 11:24 am

I had the same issue a couple of years ago. I read conflicting reports. One year when I had enough ready to itemize medical I just itemized it. The next year I didn't have enough and decided to roll the dice and claim it as self employment insurance. Given I didn't have a lot of other expenses I figured the audit risk was small.

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Artful Dodger
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Re: COBRA deductible as Self Employed Health Insurance?

Post by Artful Dodger » Fri Feb 08, 2019 12:58 pm

MikeG62 wrote:
Fri Feb 08, 2019 11:04 am
marcopolo wrote:
Fri Feb 08, 2019 10:52 am
I have seen very conflicting advice on this in my various searches. I was hoping to get some advice from the people here that are very knowledgeable about tax matters.

Left employment, Company re-imbursed COBRA for a while, then self-pay COBRA. This would be for 2019 taxes, if that makes a difference.

Are the self-pay months deductible as Self Employed Health Insurance?
Marcopolo,

I think this is a grey area (or was back when this thread was active). See the discussion here and especially the material I linked:

viewtopic.php?f=2&t=208254&p=3195358&hi ... A#p3195358

At the end of the day, if it’s grey then it’s your call to make. It would seem in the worst case you could at least pass the “red face test” under audit if not prevail outright.
I agree this is a gray area. OP, assuming you are actually self-employed with offsetting income, I say take the deduction. While I've seen language referencing reimbursement of the COBRA payments, I would pay the expense out of your business account, so it shows as directly paid by your "employer".

Spirit Rider
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Re: COBRA deductible as Self Employed Health Insurance?

Post by Spirit Rider » Fri Feb 08, 2019 9:45 pm

First, it is not correct that the policy must be in the name of the business. Here is a direct quote from Form 1040 Instructiions; "If you are filing Schedule C, C-EZ, or F, the policy can be either in your name or in the name of the business."

It is really a gray area as to whether COBRA can be considered in your name. I have taken the self-employed health insurance deduction for COBRA more than once, because I received the bills in my name.

However, most people will take the opposite position and you should understand this deduction could be denied.

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marcopolo
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Re: COBRA deductible as Self Employed Health Insurance?

Post by marcopolo » Fri Feb 08, 2019 10:47 pm

Well, it sounds like this is still an unsettled area of the tax laws.

Thanks all for the info.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Artsdoctor
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Re: COBRA deductible as Self Employed Health Insurance?

Post by Artsdoctor » Sat Feb 09, 2019 1:14 pm

If you have an HSA, you can pay your COBRA premiums with money from that account so those premiums would be paid in pre-tax dollars, if that helps.

kaneohe
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Re: COBRA deductible as Self Employed Health Insurance?

Post by kaneohe » Sat Feb 09, 2019 2:14 pm

on p.22 https://www.irs.gov/pub/irs-pdf/p535.pdf is a wksht providing some guidance.
The instructions are list any expenditures for medical insurance except: (which lists some exceptions)
Presumably if you don't fall in those exceptions, it's ok. The main relevant criterion seems to be if the health insurance is subsidized.

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beyou
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Re: COBRA deductible as Self Employed Health Insurance?

Post by beyou » Sun Feb 10, 2019 1:24 am

I did a fair amount of reading on this and concluded that I would take this as an above the line deduction.

Note if it is a family policy, the named insured and the self employed person must be one and the same. Cant have Cobra deducted above the line if spouse is the only one self employed (no way to argue policy is in spouses name). But if you have self employment income after leaving your job, I dont think it too aggressive to deduct.

TropikThunder
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Re: COBRA deductible as Self Employed Health Insurance?

Post by TropikThunder » Sun Feb 10, 2019 2:42 am

Spirit Rider wrote:
Fri Feb 08, 2019 9:45 pm
First, it is not correct that the policy must be in the name of the business. Here is a direct quote from Form 1040 Instructiions; "If you are filing Schedule C, C-EZ, or F, the policy can be either in your name or in the name of the business."

It is really a gray area as to whether COBRA can be considered in your name. I have taken the self-employed health insurance deduction for COBRA more than once, because I received the bills in my name.

However, most people will take the opposite position and you should understand this deduction could be denied.
One thing that would give me pause though is the line right above the one you quoted:
The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business.
https://www.irs.gov/pub/irs-pdf/p535.pdf

Isn't COBRA continuation of employer-provided coverage and as such not "established under your business"? I'm no expert in this area, and there are articles online on both sides re: deductible (even Turbo tax has given opposing answers to this question). I've never used COBRA so I don't know how the bills are presented, and "considered to be establish" is kind of a squishy phrase.

Pete3
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Re: COBRA deductible as Self Employed Health Insurance?

Post by Pete3 » Sun Feb 10, 2019 7:29 am

TropikThunder wrote:
Sun Feb 10, 2019 2:42 am
Spirit Rider wrote:
Fri Feb 08, 2019 9:45 pm
First, it is not correct that the policy must be in the name of the business. Here is a direct quote from Form 1040 Instructiions; "If you are filing Schedule C, C-EZ, or F, the policy can be either in your name or in the name of the business."

It is really a gray area as to whether COBRA can be considered in your name. I have taken the self-employed health insurance deduction for COBRA more than once, because I received the bills in my name.

However, most people will take the opposite position and you should understand this deduction could be denied.
One thing that would give me pause though is the line right above the one you quoted:
The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business.
https://www.irs.gov/pub/irs-pdf/p535.pdf

Isn't COBRA continuation of employer-provided coverage and as such not "established under your business"? I'm no expert in this area, and there are articles online on both sides re: deductible (even Turbo tax has given opposing answers to this question). I've never used COBRA so I don't know how the bills are presented, and "considered to be establish" is kind of a squishy phrase.
Medicare is definitely not "established under your business" and yet the IRS allowed those premiums to be deducted so I think that suggests that that requirement cannot be taken at face value.

Read the IRS memo which I have quoted only parts of below : https://www.irs.gov/pub/irs-wd/1228037.pdf

"LAW AND ANALYSIS

Section 162(l) allows an individual who is an employee within the meaning of section 401(c)(1) to take a deduction in computing adjusted gross income. Sole proprietors, partners in a partnership, and 2-percent shareholders in an S corporation are employees for this purpose. The deduction in section 162(l) is for amounts paid during the taxable year for insurance that constitutes medical care for the taxpayer, his or her spouse, dependents, or a child (as defined in section 152(f)(1) of the taxpayer who as of the end of the taxable year has not attained age 27). 1 The deduction is not allowed to the extent that the amount of the deduction exceeds the earned income (within the meaning of section 401(c)(2)) derived by the taxpayer from the trade or business with respect to which the plan providing the medical care coverage is established. Also, under section 162(l), the deduction is not allowed for amounts during a month in which the taxpayer is eligible to participate in any subsidized health plan maintained by an employer of the taxpayer or of the spouse of the taxpayer.
...
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). "


The last paragraph I quoted is making the point that the premiums you want to deduct are legitimately for health insurance and as long as the other conditions are met (not subsidized, income exceeds deduction amount) then the deduction can be taken.

How can Medicare be ok to deduct but not Cobra - what is the logic?

I think people are getting too hung up the particular language the IRS used and not the intent - if you are self-employed and paying for legitimate non-subsidized health insurance then you should be able to deduct the premiums.

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