Self employed, dependent covered by ex, advance PTC

[Margaret CPA in OH]

Client has dependent student daughter, 19, who is covered by ex's health insurance.  Daughter earned $6500.  Client was self employed for 6 months, covered by COBRA (from ex) for 2 months, employer for 5 months and on exchange for 3 months with advance PTC.

 

I know I have to work through the issue for self employed health insurance deduction (once I figure out whether the COBRA is specified or nonspecified premiums.  At least Pub. 974 states that Marketplace coverage is a not a qualified health plan so those premiums are nonspecified.

 

My immediate issue is Line 1 on Form 8962.  The family size is, of course, 2, and the dependent has earnings as noted.  However, her earnings skews the MAGI and, because she is covered by ex, skews family size for the calculation for poverty line.  If I mark the return to not claim her this year, the Poverty Line percentage changes dramatically from 308% with the lowest of 229%.  It does seem that the net premium tax credit remains the same, however, at $718, I'm guessing as all configurations are less than 400%.  So maybe I lucked out on this or is there some way to indicate that family coverage isn't required?

 

Now on to the iterative fun and games....

 

Of course there is no way I can bill for this.

[Margaret CPA in OH]

Okay, so the iterative fun and games wasn't as bad as I anticipated.  However I may have used the wrong amounts for the nonspecific insurance.  COBRA or not?  With the crazy calculations with Worksheets P, W and X and iterative calculations, she no longer has additional PTC due to the deduction for SEHI and now owes.  But family size?  COBRA?  I cannot find either of these addressed. I may just punt.

[Margaret CPA in OH]

Anyone?  With 31 views, I may not be the only one with this issue and it seems no one has answers.  If none are forthcoming, she will owe $162 which I think unfair but I have no idea what else to do.

[jklcpa]

The number of views can come from anyone searching the web that clicks on the topic, not just from members here.

 

With everything you wrote in your first post, I wasn't sure what exactly your question was.

 

The family size is definitely '2' unless you find that your client fails one of the dependency tests for the student, she is a dependent and she earned $6500.  Those earnings take her over the threshold for being required to file a return, so her income must be included in MAGI.

 

It looks like your client had coverage for 10 months. Does she qualify for the short coverage gap for the other two to at least avoid the penalty for those months?

 

COBRA generally counts as having the availability of a plan outside the marketplace, as long as the policy meets minimum essential coverage. Where exactly is your question on the COBRA?  I'll try to help if I'm able.

 

ETA - if your question on the COBRA is whether it can be included for purposes of the SEHI, my reaction is that it's not.  It is a continuation of a policy established under another employer's group plan, not a plan in the name of your self-employed client.  You'd have to take the position that the policy is established in the name of your client's business in order to include it for purposes of calculating the SEHI.

[jklcpa]

Margaret, I did a little quick reading (and googling).  Sec 162(l)(2 )(B ), regarding the health insurance says:

(B ) Other coverage
Paragraph (1) shall not apply to any taxpayer for any calendar month for which the taxpayer is eligible to participate in any subsidized health plan maintained by any employer of the taxpayer or of the spouse of, or any dependent, or individual described in subparagraph (D) of paragraph (1) with respect to, the taxpayer. The preceding sentence shall be applied separately with respect to—

(i) plans which include coverage for qualified long-term care services (as defined in section 7702B (c )) or are qualified long-term care insurance contracts (as defined in section 7702B (B )), and
(ii) plans which do not include such coverage and are not such contracts.

 

The word "subsidized" is where everyone hangs up on the issue.  I've read posts where both sides of the issue are taken, depending on how one interprets the word.  Here's a site with some lawyers arguing over the same issue back in 2010  (lawyers dot com discussion forum).  You should take a look at the whole thread but in particular the 5th post down where the posts states that the IRS national office counsel, in advice to a field attorney, addressed the issue by stating:

 

Note that it disallows as a self-employed health insurance deduction (a § 162(l) deduction) any premiums paid on an insurance plan subsidized by an employer. The term subsidized means that the employer pays some part of the premium cost. The normal COBRA plan requires that the employee pay 100% of the cost of the insurance plus a 2% handling fee. It is therefore not subsidized by the employer, and thus the premiums paid for that insurance is eligible for the § 162(l) deduction. This is something that IRS national office counsel noted in advice to a field attorney: "With respect to COBRA continuation coverage, we understand that in the typical situation a group health plan requires premium payments of 102 percent of the applicable premium, as permitted by section 4980B(f)(2)© of the Code. Therefore, an individual receiving COBRA continuation coverage from such a plan would not be receiving subsidized coverage within the meaning of section 162(l)." IRS FSA 1995 WL 1918547.

 

I still don't have a good feeling about taking the deduction.  Could it truly be argued that it is established under the name of the business since it is through another employer's group, whether it is subsidized or not?

 

>This topic from 2012 on this forum also has opinions on the "subsidized" plan question. See Jainen's post #6 which is the same as some other opinions I found in my searches where he says that all employer group plans are subsidized.

 

Anyway, that's some of what I found. I don't know if any of that is helpful.

Edited March 7, 2015 by jklcpa
forgot to add the links!

[Margaret CPA in OH]

Thanks so much, Judy. I will read through all this in a bit and try to digest. I am leaning towards including the COBRA as she was paying the unsubsidized amount. As far as 'established under the business name,' I think that isn't so crucial any longer. I didn't yet go to code but my QF says HI premiums paid on behalf of the sole prop are deducted on line 29.

It also qualifies subsidized plans from an employer of either the taxpayer, his (sic) spouse, his(sic) dependents or his (sic) child. My client had coverage under her partner's insurance plan.

In addition, Medicare premiu,s can be used as sehi and surely that isn't established under the business name.

I just think it wrong to include the income of a dependent when that dependent is covered by another person (ex-partner).

Thanks again for responding. I will do some reading and pondering on these things now.

[jklcpa]

Margaret, maybe you should start a separate topic in general chat regarding only the COBRA as it relates to the SEHI deduction. Some of the people aren't visiting the ACA forum, and since this portion of your question isn't directly related to the ACA, you might get more input from general chat than just from me.

[joanmcq]

I had no qualms about taking COBRA payments as SEHI when I was on it. The Medicare ruling on SEHI pretty much quashed the name of the business qualification IMHO.