Health Insurance Deduction - Self Employed

[Crank]

I picked up a new client and I have a perplexing situation.

Husband is disabled and purchases health insurance for the family (taxpayer, spouse & two children) from his former employer. The husband is on SS with no earned income. He and the spouse are under age 50.

Wife works a part-time job (is not elegible for health insurance) and also has a Sch C business.

Their previous tax preparer deducted the health insurance premiums (which are purchased out of pocket from the husbands previous employer) on line 29 as a "Self Employed Health Insurance Deduction".

I dont agree with this as the plan was not established in the business name. Am I wrong?

Thanks for your input.

[KEYWEST_RICKS]

I they participated in a group health plan through an employer.....I agree with you. Not deduct as se health ins

[Crank]

That's the problem. They are saying that the company from which they are purchasing the insurance isnt the husband's employer anymore. But I believe he is still an employee on long term disability. Why else would this company let them purchase insurance through their plan at employee rates.

Either way I still think Im correct because the regs state that the plan must be "established under the business".

I think Ill let this one walk if they continue to insist on the deduction.

[jainen]

>> isnt the husband's employer anymore<<

Show him the Instructions to Form 1040, Line 29. The law says "employer," not "current employer." Maybe he's on disability or COBRA or retirement. Doesn't matter. If his ID card shows that's a group policy, it isn't established under the wife's business.

Oh, by the way, why didn't he go back to his previous tax preparer?

[Kea]

Isn't there also a stipulation about it being "subsidized" by an employer? If they are getting any kind of discount on the premium because it's his former employer then no deduction. If there is no subsidy -- see others' answers.

[jainen]

>>If they are getting any kind of discount on the premium<<

Two things wrong with that argument. First of all, ALL group plans involve employer subsidy, even if dependents or other individual non-employees pay full price to participate. That's the only way an entire group can be covered since some members might not be otherwise eligible for health insurance. Second, even if it weren't subsidized, it's still the employer's plan--not established under the sole proprietorship.

[Crank]

Thanks for the replies. Im satisifed that I am correct on this one. They claim that the prior tax preparer retired. I'm betting the individual dosent want to take the exam and continuing ed.

[joanmcq]

I disagree with jainen in that ANY group plan is a 'subsidized' plan. If I have an option as an SE person to join a group plan through CalCPA or another professional org, is that subsidized? How about the High-Risk Insurance Pool?

The only thing with COBRA is that you can't get booted off for pre-existing conditions, which anyone over the age of 30 probably has. Even when employed, I paid much higher premiums than the 21 year old male in the next cubicle. They even jumped mid-year the month I turned 50.

[Crank]

@joanmcq

I dont believe these payments are being made via COBRA. They have been buying health insurance through the previous employer for over 10 years, since the spouse became totally disabled. I dont know if the plan is subsidized or not. I assume its subsidized since they make payments directly to the previous employer each month. Also the previous employer is an international S&P 500 company with >10,000 employees

[joanmcq]

In your situation, no, it won't qualify.

I was responding to jainen's comment that any group plan is subsidized.

[Crank]

I didnt think so, thanks for the reply. :)