Self-Employed can now deduct Medicare premiums
The IRS has reversed its long standing position on self-employed individuals being able to deduct Medicare Premiums from self-employment income. Prior to 2010 you could not deduct these premiums as health insurance in arriving at self-employment income.
IRS chief counsel now states that because Medicare Part B is insurance that constitutes medical care under Sec. 162(I), it is similar to other health insurance and its premiums can similarly be deducted, including for coverage of a self-employed taxpayer’s spouse and qualifying child or other dependent. Children can include those up to age 27.
Besides a sole proprietor, a self-employed individual for purposes of the deduction can be a partner or S corporation employee who is a more-than-2% shareholder on whose behalf the partnership or S corporation pays the premium. Or the partner or S corporation employee-shareholder may pay the premium directly and be reimbursed by the partnership or S corporation. In either case, the amount must be properly reported and included in the partner’s or employee-shareholder’s gross income.
This change was effective March 30, 2010. Therefore, you may want to consider filing an amended return for 2010 and 2011. Please call your ShindelRock tax professional to discuss this matter.