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If Box 5 on a 1099-R is empty, does that mean that health insurance premiums for a self-employed retiree can be deducted on line 29 of the 1040? (Assumption: All other requirements for 1040 line 29 are met.)

Here are the facts:

  1. Retiree receives a pension from a former employer, is on Medicare, and has self-employed income.
  2. The 1040, line 29, allows a health insurance deduction with this exception: Amounts for any month you were eligible to participate in a health plan subsidized by an employer.
  3. Retiree's paystubs show monthly deductions for health insurance. No indication on the paystubs of any employer contribution.
  4. On the 1099-R, Box 5 is blank (see image and notes about image).

1099-R example

Image Notes:

  • Boxes 1, 2a, and 14 match the gross annual income indicated on the pay stubs.
  • Boxes 4 and 12 show taxes withheld at 20% more than needed (over withholding).
  • Box 5 is empty. As I understand it, this is where any subsidized health insurance amount would appear, per the 1099-R instructions "Generally, this shows the employee’s investment in the contract (after-tax contributions), if any, recovered tax free this year"
  • Box 7 has the code 7; the code means "Normal distribution," which I assume means there were no adjustments to the gross annual income.
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    A self-employed person does not deduct his/her health insurance premiums of Schedule C Line 29 at all; that line is for health insurance costs paid for the other employees (if any) of the self-employed person. Health care costs for the self-employed person are deducted on Form 1040 Line 29. – Dilip Sarwate Nov 16 '18 at 3:44
  • Dilip - Good catch. I meant line 29 on the 1040. Schedule C doesn't have any entry for health insurance. I know this, but immersed myself in too many details while writing the post. I'll correct the original post. – RJo Nov 16 '18 at 4:11
  • Addendum to my comment: The retiree does claim self-employed income on Schedule C, and the income tracks back to the 1040, Line 12, which I do know limits the amount that can be deducted on 1040, Line 29. – RJo Nov 16 '18 at 4:23
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    Box 5 of Form 1099-R has nothing to do to with this--that's where Roth 401(k) or similar contributions are listed. Is there any reason to think you couldn't deduct Medicare premiums on line 29 of Form 1040 up to the amount of Schedule C net profit? – Craig W Nov 16 '18 at 12:49
  • @ Craig W -- 1/3 comments ~~ Three types of insurance premiums can be deducted: Medicare, long-term care (LTC), and employer-sponsored (which serves as Medicare secondary). Medicare and LTC definitely deductible. But what of the premium for employer-sponsored insurance? – RJo Nov 16 '18 at 18:49
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Spoke with a financial advisor who said this:

  1. Employer-sponsored plans may be constructed so that both employer and retiree pay a share of the premium.
  2. Premiums that are deducted from a retiree's taxable income can be deducted (subject, of course, to meeting the requirements for the deduction).
  3. Premiums the person pays as part of a tax-protected scheme--for example, an FSA contribution--cannot be deducted. See https://www.investopedia.com/ask/answers/112315/are-flexible-spending-account-fsa-contributions-tax-deductible.asp)
  4. Premiums that the employer pays cannot be deducted (makes sense, because the employer would reserve any tax benefit for themselves). See https://www.nytimes.com/2017/07/07/health/health-insurance-tax-deduction.html

The NY Times article is a bit confusing because it has a poor referent ("those") in this excerpt (my emphasis on "those"): But economists on the left and the right argue that to really rein in health costs, Congress should scale back or eliminate the tax exclusion on what employers pay toward employees’ health insurance premiums. Under current law, those premiums are not subject to the payroll or income taxes that are taken out of employees’ wages, an arrangement that vastly benefits middle- and upper-income people.

In this case, "those" refers only to the share of the premium paid by the employer.

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