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My wife and I both receive Medicare parts A and B. We can not participate in previous employer's health plan as primary because we are on Medicare. However, we do participate in the employer's plan as secondary health insurance. An accountant friend says IRS does not treat the secondary plan as subsidized employer health care plan and therefore the Medicare premiums can be deducted on schedule C. This seems inconsistent with wording from IRS. Any thoughts?

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You cannot deduct any health insurance premiums for yourself or your family on Schedule C, only for health insurance coverage that you provide as an employment benefit to your other employees. This is true even if your self-employment business has generously adopted a health-care plan to cover all employees and their families and is paying for health insurance for all employees (and possibly their families including yourself and your family) from the income generated by your self-employment business. Health insurance premiums for your other employees are a business expense and deductible on Schedule C. For yourself and your family, the deduction is taken on Line 29 of Form 1040, and thus is not included in your AGI. And Yes, you can deduct Medicare premiums for Parts B and D on Line 29. As the Instructions for Form 1040 tell us with regard to Line 29,

Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer can't be used to figure the deduction.

Medicare premiums qualify as deductible as a medical expense on Schedule A (if you choose not to claim them on Line 29) but one can deduct only that part of the sum total of medical expenses that exceeds 7.5% of AGI (for those over 65, 10% of AGI for younger folk), and so the possible deductibility of Medicare premiums provides no benefit for those whose medical expenses are less than the 7.5% floor. Line 29 has no such floor (except that you cannot deduct more than your net income from Schedule C (less the deductions taken on Lines 27 (Self-Employment Tax) and 28 (Retirement Contributions from Self-Employment Income) ).

  • For anyone still grappling with this, see the question, graphics, comments, and answer at money.stackexchange.com/questions/102128/… Note: The post is my own. A comment from @Dilip t helped me realize an error in the way I was talking to others about the deduction. I kept referring to "Schedule C line 29" when I really meant "1040 line 29." I.e., the Schedule C line 14 health insurance deduction is for employees, and the 1040 line 29 deduction is for the owner. – RJo Nov 23 '18 at 22:08
  • Addendum: The link in my previous comment goes directly to the answer. It may be beneficial to some to also scroll up the page to see the question. – RJo Nov 23 '18 at 22:10

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