OLDERS By Dawn JJ. Jessee, CPA
A IRS has prrovided guidaance for a sole
e proprietor, partner, or 2 % shareholdeer of an S corporation to deduct Medicare prem
miums as med
dical care insu
urance. Plus, nnow all Mediccare Parts aree now eligiblee for deduction
n as self‐employed health insurance, no
ot just Part B as earlier guidance indicatted. Background. To the exxtent of profitt earned from
m a business vventure, a self‐employed p
person (a solee proprietor, partner, orr more‐than‐2
der of an S corrporation) can deduct as aa business exp
pense the amount paid durin
ng the tax year for medical insurance onn himself, his spouse, depeendent, or ch
hild who as off the end of th
he tax year is not yet 27 ye
ears old. The deduction isn
n't available if the businesss owner is e
eligible to parrticipate in an
ny subsidized health plan m
maintained by an employeer of the taxp
payer (for instan
nce, the busin
ness is on the
e side) or of th
he spouse of tthe taxpayer. Guidance
e. The IRS con
ncludes that aall Medicare P
Parts are insuurance that co
onstitutes meedical care un
nder these rule
es. This conclu
usion extendss to Medicare
e premiums foor coverage o
of a self‐employed individu
ual's spouse, dependent, orr child who ass of the end o
of the tax yearr is not yet 277 years old. Further, taxpayers mayy amend any open‐year taax returns to cclaim those M
Medicare prem
miums! A partner in a partnersship may pay the premium
ms directly andd be reimburrsed by the paartnership, orr the premiumss may be paid
d by the partn
nership. In eitther case, thee premiums m
must be reporrted to the paartner as guaranteed paymen
nts and he mu
ust report the
e guaranteed payments ass gross income on his Form
m 1040. Similarly, a 2% shareho
older‐employyee in an S corrporation maay pay the preemiums direcctly and be reimburse
ed by the S co
orporation, or the premium
ms may be paaid by the S co
orporation. In
n either case,, the premiumss must be rep
ported to the 2% sharehold
der‐employeee as wages on
n Form W‐2, aand he must
report this amount as gross income
e on his Form 1040. A sole pro
oprietor mustt pay the Med
dicare premiu
ums directly.
Disclosure: In accordance w
with IRS Circular 230, Regulations Governing thee Practice of Attoorneys, Certified
d Public Accountants, Enrolled Age
ents, Enrolled Actuaries, and Ap
ppraisers before the Internal Revvenue Service, the information on this website is not intended orr written to be used as, and cann
not be used as o
or considered to be a "covered oopinion" or other written tax advvice, and should not be relied on
n for the purpose
e of (1) avoiding tax‐related pennalties under thee Internal Revenue Code or (2) o another party aany transaction oor tax‐related m
matter(s) addresssed herein, for IR
RS promoting, marketing or recommending to
purposes. audit, tax diispute or other p
_______________ © 2012 by Dawn J. Jessee, CPA, PC.. All rights reserved. This iinformation o
or any portion
n thereof mayy not be copied
d or disseminaated in any fo
orm or by anyy means withoout the expreess written co
onsent of Daw
wn J. Jessee, CP