question re self-employed health insurance deduction


J

Jan Weingarten

I've been self-employed for several years and have been claiming the
health insurance deduction. I'm about to take a job that will (after
three months) reimburse me $150/month for health insurance. My current
plan costs over $700/month. I will be continuing my current business,
so my self-employment will continue.

So my question is - since I will be reimbursed for a (small) portion
of my health insurance costs, will I still be able to use the
self-employed health insurance deduction? Thanks!

Jan
 
Ad

Advertisements

A

Alan

Jan said:
I've been self-employed for several years and have been claiming the
health insurance deduction. I'm about to take a job that will (after
three months) reimburse me $150/month for health insurance. My current
plan costs over $700/month. I will be continuing my current business,
so my self-employment will continue.

So my question is - since I will be reimbursed for a (small) portion
of my health insurance costs, will I still be able to use the
self-employed health insurance deduction? Thanks!

Jan
Yes you can still take the deduction. How much you deduct depends
upon how the employer accounts for the reimbursement. If the $150
per month gets reflected in your 1099-MISC as nonemployee
compensation, then you deduct the amount (Over $700/month) you
actually paid. If the 1099 does not include the $150/month then
you deduct what you paid less what you were reimbursed. Almost
always in these situations, the 1099 includes the health payment
as compensation.
 
S

Steve Pope

Alan said:
Jan Weingarten wrote:
Yes you can still take the deduction.
Not if an employer health plan was an available option. The
above post does not state whether or not this is the case.

Declining an employer health plan is not good enough. That's
my understanding. It's a frequent circumstance that an employee
might decline an employer health plan, and accept some other
sort of compensation in return (such as the $150 in this case).

Steve
 
A

Alan

Steve said:
Not if an employer health plan was an available option. The
above post does not state whether or not this is the case.

Declining an employer health plan is not good enough. That's
my understanding. It's a frequent circumstance that an employee
might decline an employer health plan, and accept some other
sort of compensation in return (such as the $150 in this case).

Steve
I assumed the job he was referring to was as a contractor and
that he remained a self-employed individual. That's why I said
the reimbursement would be on a 1099-MISC and not a W-2.

I leave it to the OP to clarify the ambiguity in his post.
 
M

Mark Bole

The "job" must refer to being an employee, not an independent
contractor. The only kinds of expenses that clients can reimburse
self-employed persons for are expenses incurred on behalf of the client
or customer, which health insurance clearly is not.

I'm not sure how the employer is "reimbursing" you. Are you saying that
after three months, you are eligible to enroll in the employer's group
plan and the employer pays the first $150 of premium per month? Or are
they simply paying you "extra" taxable wage income to make up for not
offering a group plan? Or, do they have a Health Reimbursement
Arrangement (HRA), which receives tax-free contributions from the
employer that you can use to pay for health care?


If you had the *option* of being covered under your or your spouse's
employer group health insurance at any time during the month, no you
can't take the SE health insurance deduction for that month, whether you
were actually covered or not. I'm not sure if an HRA is a "subsidized
health plan maintained by your employer", which would eliminate the SE
health insurance deduction.

I assumed the job he was referring to was as a contractor and that he
remained a self-employed individual. That's why I said the reimbursement
would be on a 1099-MISC and not a W-2.
Other than limited case of travel, car, gift, and entertainment expenses
incurred on behalf of the client or customer, there is no such thing as
"reimbursement" for an independent contractor. It's all gross income.

-Mark Bole
 
S

Steve Pope

Mark Bole said:
The "job" must refer to being an employee, not an independent
contractor. The only kinds of expenses that clients can reimburse
self-employed persons for are expenses incurred on behalf of the client
or customer, which health insurance clearly is not.
I think there must be some scope missing from this statement.

A client can make such a payment to a contractor, but the
contractor could not claim a corresponding business expense
on their Schedule C, and must report the payment as revenue.

Perhaps the client could not claim the payment as a business
expense either, depending upon the sense of the contract
between client and contractor; but I would think in most cases
they could.

Steve
 
Ad

Advertisements

M

Mark Bole

Steve said:
I think there must be some scope missing from this statement.

A client can make such a payment to a contractor, but the
contractor could not claim a corresponding business expense
on their Schedule C, and must report the payment as revenue.

Perhaps the client could not claim the payment as a business
expense either, depending upon the sense of the contract
between client and contractor; but I would think in most cases
they could.
I'm not sure if we're talking here about health insurance, or customer
reimbursement of certain business expenses you incurred on their behalf.
Maybe we're just quibbling over when it is correct and incorrect to
use the word "reimbursement".

Let me put it this way: if I was helping a taxpayer who told me he was
self-employed but part of his agreement with his client was to be
reimbursed for health insurance, my next question would be, "are you
sure you're not really an employee whose employer is trying to
incorrectly classify you otherwise?"

Health insurance is a personal expense, and whether the contractor has
any, or what it costs, is by definition outside the agreement between
them. A successful contractor needs to make enough net profit to pay
his personal expenses, rather than bill them to his clients.

-Mark Bole
 
S

Steve Pope

Mark Bole said:
Steve Pope wrote:
I'm not sure if we're talking here about health insurance, or customer
reimbursement of certain business expenses you incurred on their behalf.
Maybe we're just quibbling over when it is correct and incorrect to
use the word "reimbursement".
Let me put it this way: if I was helping a taxpayer who told me he was
self-employed but part of his agreement with his client was to be
reimbursed for health insurance, my next question would be, "are you
sure you're not really an employee whose employer is trying to
incorrectly classify you otherwise?"
That ranges into yet another area, whether the person is correctly
classified as self-employed. Whether the contractor or the
client pays for business expenses is indeed one of the twenty
questions. (None of the other 19 questions seem to apply.)
Health insurance is a personal expense,
(Well, it has a long history of being a business expense in the
U.S.)
and whether the contractor has
any, or what it costs, is by definition outside the agreement between
them.
I'll agree with that.

In any event, I do not think your scenario is being described in
this thread (i.e. the OP is -- I believe -- an employee, not a
contractor, of the payor of this healthcare subsidy).

Steve
 
M

Mark Bole

Steve said:
In any event, I do not think your scenario is being described in
this thread (i.e. the OP is -- I believe -- an employee, not a
contractor, of the payor of this healthcare subsidy).
Yes...that is the inference I started with.

My reply was in response to Alan, who thought an sole proprietor could
receive a health insurance "reimbursement" from his client, and yet not
properly report it as gross income.

It was this sentence and a half I found confusing, and was trying to
clarify:

"How much you deduct depends upon how the employer accounts for the
reimbursement. If the $150 per month gets reflected in your 1099-MISC as
nonemployee compensation, ..."

-Mark Bole
 
Ad

Advertisements

M

Mark Bole

Mark Bole wrote:
[...]
If you had the *option* of being covered under your or your spouse's
employer group health insurance at any time during the month, no you
can't take the SE health insurance deduction for that month, whether you
were actually covered or not. I'm not sure if an HRA is a "subsidized
health plan maintained by your employer", which would eliminate the SE
health insurance deduction.
Upon further research, looks like an HRA is a subsidized employer plan
(since it represents tax-free income) and therefore cancels the SE
health insurance deduction.

-Mark Bole
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top