Medicare premiums are business deductions
Wednesday, July 18th, 2012
A self-employed person may get a business deduction for health insurance premiums. The IRS has clarified that Medicare premiums paid by self-employed persons qualify as deductible health insurance premiums.
If you did not include Medicare premiums in your self-employed health insurance deduction, you may want to consider amending your tax returns to include them.
Before 2010, IRS instructions said that Medicare premiums could not be included in the self-employed health insurance deduction. In 2010, the instructions (and Publication 535, Business Expenses) were changed to say that Medicare premiums can be used to figure the deduction, but the IRS did not explain the change.
The IRS Office of Chief Counsel advised IRS attorneys in Chief Counsel Advice (CCA) 201228037 that Medicare is similar to other health insurance. Therefore, Medicare premiums for the self-employed taxpayer, taxpayer’s spouse, and qualifying child or other dependent can be deducted as business expenses just as other health insurance premiums. All Medicare parts are deductible.
The deduction is limited to the taxpayer’s earnings from the trade or business. The business may be a sole proprietorship, partnership, or S corporation. Specific reporting rules for partners and S corporation shareholders must be followed to secure the deduction.
If you had Medicare and self-employment income in 2008 or after, it may pay to take another look at your returns and see if this deduction was taken. If not, call us to “run the numbers” and help you decide whether to file amended returns and recover overpaid taxes.