25 May 2011

SE Health Insurance Deduction and Medicare B

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From: TaxHelp@hal1.ausc.irs.gov

Sent: Friday, February 04, 2011 12:31 PM

 To: Tim Hilger

Subject: IRS Email Tax Law Assistance NOTE: Thank you for your inquiry. Our response to your tax law question appears below.

I hope this information has been helpful. If you have a follow‐up question or another general tax law question, please return to our web site at: www.irs.gov.

Your Question Was: Instructions to form 1040 say that Medicare Part B premiums count towards the self‐employed health insurance deduction on line 29. This contradicts FSA 3042 and Pub. 535. Which is correct?

The Answer To Your Question Is: Thank you for your inquiry regarding Medicare Part B premiums and the Self‐Employed Health Insurance Deduction. Your inquiry states that the instructions for Form 1040 contradict FSA 3041 and Publication 535, and asks which is correct.

We apologize for the delay in responding. The instructions for 2010 Form 1040, line 29, state that you may be able to deduct the amount you paid for health insurance for yourself, your spouse, and your dependents. Effective March 30, 2010, the insurance can also cover your child who was under age 27 at the end of 2010, even if the child was not your dependent. One of the following statements must be true. You were self‐employed and had a net profit for the year. You used one of the optional methods to figure your net earnings from self‐employment on Schedule SE. You received wages in 2010 from an S corporation in which you were a more‐than‐2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W‐2. The insurance plan must be established under your business. Your personal services must have been a material income‐producing factor in the business. If you are a more‐than‐2% shareholder in an S corporation, the plan must be established by the S corporation. A plan is established by the S corporation if (a) the S corporation makes premium payments for the policy in 2010 or (b) you make the premium payments and furnish proof of payment to the S corporation and then the S corporation reimburses you for the premium payments in 2010. You can deduct the premiums only if the S corporation reports the premiums paid or reimbursed as wages in box 1 of your Form W‐2 in 2010 and you also report premium payments or reimbursements as wages on Form 1040, line 7. But if you were also eligible to participate in any subsidized health plan maintained by your or your spouse’s employer for any month or part of a month in 2010, amounts paid for health  insurance coverage that month cannot be used to figure the deduction.

In addition, effective March 30, 2010, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2010, do not use amounts paid for coverage that month to figure the deduction.

Medicare Part B premiums can be used to figure the deduction. Amounts paid for health

insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction.

Publication 535 is targeted to be updated for 2010 in March 2011. We hope this information

helps you. We apologize for the confusion and inconvenience. If you have any other questions, please contact us again. Thank you for using this service.

IRS forms and publications may be accessed on our web site at the following address:

www.irs.gov or ordered through our toll‐free forms line at: 800‐829‐3676 Expect delivery

within 10 business days.

Other useful toll‐free numbers include:

800‐829‐1040 IRS Tax Help Line for Individuals

800‐829‐4933 Business and Specialty Tax Help Line

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