Premiums for Medicare health insurance can add up to a substantial sum. That’s especially true if
Fortunately, the premiums can potentially help your tax situation. The dollar benefit of Medicare tax deductions depends greatly on where you can deduct the premiums:
If You Are a Sole Proprietor If you are a sole proprietor or an LLC member treated as a sole proprietor for tax purposes who files Schedule C, a health insurance policy can be in the name of your business or in your own name. Premiums you pay for Medicare health insurance in your name can be used to figure the above-the-line deduction for self-employed health insurance. If You Are a Partner If you are a partner or an LLC member treated as a partner for tax purposes, a health insurance policy can be either in the name of the partnership (LLC) or in your own name. You can pay the premiums yourself, or the partnership (LLC) can pay them and report the premium amounts on your Schedule K-1 as guaranteed payments that you must include as income on your Form 1040. But if the policy is in your name and you pay the premiums yourself, the IRS says the partnership (LLC) must reimburse you and report the premium amounts on your Schedule K-1 as guaranteed payments that you must include as income on your Form 1040. Otherwise, the IRS says the insurance won’t be considered established for your business and you will not qualify for the deduction. The tax code allows the partnership (LLC) to deduct its guaranteed payments. If You Are an S Corporation Shareholder-Employee If you are a shareholder-employee who owns more than 2 percent of the S corporation, a health insurance policy can be either in the name of the S corporation or in your own name. You can pay the premiums yourself, or the S corporation can pay them and report the premium amounts on your Form W-2 as additional taxable wages.
But if the policy is in your name and you pay the premiums yourself as you would for your Medicare coverage, the IRS says the S corporation must reimburse you and report the premium amounts on your Form W-2 as additional taxable wages. Otherwise, the IRS says the insurance won’t be considered established for your business. What about a Spouse’s Medicare? In guidance, the IRS makes it clear that the S corporation and the partnership can reimburse to the shareholder-employee the spouse’s Medicare payments, and that reimbursement establishes the insurance in the business’s name. The S corporation then adds the reimbursement to the shareholder’s W-2, and the partnership treats the reimbursement to the partner as a guaranteed payment. The treatment described above creates the tax deduction for the spouse’s cost of Medicare (including supplemental insurance). If you operate as a proprietorship, we recommend having the proprietorship reimburse the nonowner spouse to establish the Medicare insurance in the name of the business
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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances. AuthorKeana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients. |