W2 vs 1099 insurance write-off
February 9, 2013 6:34 PM Subscribe
Please help me understand whether I can write off my health insurance premiums.
You are not my accountant, etc etc. I'm using TurboTax to do my taxes, and I've never had any complications before, but this year…
My employer doesn't provide health insurance – I have an individual plan. The company does give me something every month, tax-free, for insurance (125/Cafeteria Plan), but I'm still left paying a part of it.
I also received a 1099-MISC for some side work I did this year.
As a self-employed person, I'm apparently able to write off my health insurance premiums (Schedule C/SE Health Insurance).
Am I missing something? Does the fact that the 1099 is clearly not my full-time job - or - that I'm getting something from my full-time employer towards insurance mean that I cannot write off what I pay out-of-pocket?
Thanks
You are not my accountant, etc etc. I'm using TurboTax to do my taxes, and I've never had any complications before, but this year…
My employer doesn't provide health insurance – I have an individual plan. The company does give me something every month, tax-free, for insurance (125/Cafeteria Plan), but I'm still left paying a part of it.
I also received a 1099-MISC for some side work I did this year.
As a self-employed person, I'm apparently able to write off my health insurance premiums (Schedule C/SE Health Insurance).
Am I missing something? Does the fact that the 1099 is clearly not my full-time job - or - that I'm getting something from my full-time employer towards insurance mean that I cannot write off what I pay out-of-pocket?
Thanks
My employer doesn't provide health insurance – I have an individual plan. The company does give me something every month, tax-free, for insurance (125/Cafeteria Plan), but I'm still left paying a part of it.
I'm not sure I fully understand what you mean, but I suspect this is the reason TurboTax isn't writing off your premiums. You can't write off your own health insurance if you're covered by a workplace policy.
posted by payoto at 6:57 PM on February 9, 2013
I'm not sure I fully understand what you mean, but I suspect this is the reason TurboTax isn't writing off your premiums. You can't write off your own health insurance if you're covered by a workplace policy.
posted by payoto at 6:57 PM on February 9, 2013
Response by poster: When I punch in my insurance cost, paid with post-tax dollars, the numbers jump and my refund does go up. So TurboTax has no problem with the math. I'm just trying to figure out if it's an issue because the deduction is off of the 1099 (the total income of which is greater than my health care expenditures, but I still have the 125 from my employer.
posted by mhz at 7:01 PM on February 9, 2013
posted by mhz at 7:01 PM on February 9, 2013
IRS guidance:
If you are self-employed and have a net profit for the year, you may be able to deduct (as an adjustment to income) the premiums you paid on a health insurance policy covering medical care including a qualified long-term care insurance policy covering medical care including a qualified long-term care insurance policy for yourself and your spouse and dependents. You cannot take this deduction for any month in which you were eligible to participate in any subsidized health plan maintained by your employer, your former employer, your spouse's employer, or your former spouse's employer.
posted by payoto at 7:06 PM on February 9, 2013
If you are self-employed and have a net profit for the year, you may be able to deduct (as an adjustment to income) the premiums you paid on a health insurance policy covering medical care including a qualified long-term care insurance policy covering medical care including a qualified long-term care insurance policy for yourself and your spouse and dependents. You cannot take this deduction for any month in which you were eligible to participate in any subsidized health plan maintained by your employer, your former employer, your spouse's employer, or your former spouse's employer.
posted by payoto at 7:06 PM on February 9, 2013
You would have that expense regardless of whether you had 1099 income or not. So it can't be deducted just from the 1099 income. If I remember correctly, the only things you can deduct this way are actual expenses incurred in the earning of that money.
Otherwise, you and I could write checks to each other for $10,000 and file 1099s at each other, and then have an automatic $10,000 of stuff to deduct from our W2 income.
posted by gjc at 7:16 PM on February 9, 2013
Otherwise, you and I could write checks to each other for $10,000 and file 1099s at each other, and then have an automatic $10,000 of stuff to deduct from our W2 income.
posted by gjc at 7:16 PM on February 9, 2013
Response by poster: I read that.
According to that, I do qualify for it. The simple reading of the You cannot… is that to be disqualified, the health plan needs to be subsidized AND maintained by an employer. Mine is not maintained by the employer, so I should be able to claim it as a self-employed person, but it is subsidized by an employer (through the §125 plan).
My question is whether the fact that my employer pays me a subsidy towards insurance matters at all if they are NOT maintaining the plan.
posted by mhz at 7:18 PM on February 9, 2013
According to that, I do qualify for it. The simple reading of the You cannot… is that to be disqualified, the health plan needs to be subsidized AND maintained by an employer. Mine is not maintained by the employer, so I should be able to claim it as a self-employed person, but it is subsidized by an employer (through the §125 plan).
My question is whether the fact that my employer pays me a subsidy towards insurance matters at all if they are NOT maintaining the plan.
posted by mhz at 7:18 PM on February 9, 2013
Response by poster: gjc,
Thanks. Do you have any idea where I can find a link or something with that? Because that makes sense, but then again health insurance being considered a business expense in any relation to taxes doesn't make sense, do I don't know if it works the same way.
posted by mhz at 7:23 PM on February 9, 2013
Thanks. Do you have any idea where I can find a link or something with that? Because that makes sense, but then again health insurance being considered a business expense in any relation to taxes doesn't make sense, do I don't know if it works the same way.
posted by mhz at 7:23 PM on February 9, 2013
Response by poster: (which is to say that health insurance, even if you work on 1099s only, is never "incurred in earning of that money," so I can imagine different rules apply)
posted by mhz at 7:25 PM on February 9, 2013
posted by mhz at 7:25 PM on February 9, 2013
This does not compute:
>My employer doesn't provide health insurance
>The company does give me something every month, tax-free, for insurance (125/Cafeteria Plan)
This year, this new wrinkle needs the guidance of a tax preparer. A CPA, not a storefront tax company that staffs its offices only during winter months.
posted by megatherium at 7:25 PM on February 9, 2013 [3 favorites]
>My employer doesn't provide health insurance
>The company does give me something every month, tax-free, for insurance (125/Cafeteria Plan)
This year, this new wrinkle needs the guidance of a tax preparer. A CPA, not a storefront tax company that staffs its offices only during winter months.
posted by megatherium at 7:25 PM on February 9, 2013 [3 favorites]
Response by poster: megatherium,
It does. My employer simply didn't redirect enough (although not by much), and I ended up paying a balance to my individual plan insurer.
The difference on my taxes, according to TurboTax, does not alone justify going to an accountant (on an otherwise simple return).
posted by mhz at 7:32 PM on February 9, 2013
It does. My employer simply didn't redirect enough (although not by much), and I ended up paying a balance to my individual plan insurer.
The difference on my taxes, according to TurboTax, does not alone justify going to an accountant (on an otherwise simple return).
posted by mhz at 7:32 PM on February 9, 2013
The section quoted by Payoto certainly seems to disqualify you from the self-employed health insurance deduction. You may not have opted to participate in an employer-maintained health plan, but it sounds like you were eligible to. (You say your employer doesn't provide health insurance, but a cafeteria plan by definition allows you to select a benefit plan in lieu of cash, no?)
posted by Sxyzzx at 5:32 PM on February 10, 2013
posted by Sxyzzx at 5:32 PM on February 10, 2013
Ok, reading your link I see what you mean about your employer not providing health insurance. But I would have to believe that your cafeteria plan counts as a "subsidized health plan maintained by your employer".
posted by Sxyzzx at 5:39 PM on February 10, 2013
posted by Sxyzzx at 5:39 PM on February 10, 2013
Best answer: IAAA, IANYA, and I am really not your tax attorney either ... but this is actually a very interesting tax question that I am not 100% sure of the answer to.
There are a few different issues being conflated here by the responders. Maybe I can pull back the curtain on TurboTax for you so you have a better sense of what is going on:
- It doesn't necessarily "make sense" that health insurance could be a business expense, but there are many things in the Internal Revenue Code that don't make sense. It is what is.
- For a self-employed person's health insurance premiums to be deductible, the plan has to be established "under the business." (Also, the business has to have a net profit.) But you can have it in the name of the individual.
- If you are a self-employed person, you can deduct 100% of your medical insurance premiums. (For a self-employed person, the excess above 7.5% of AGI that COD refers to does not apply.) It actually gets put it in a special spot on 1040 (line 29) and not on Schedule C.
You said that your health insurance is in your name and you receive tax-free cash from your employer for health insurance. Do you mean that you selected the "cash" option of your 125/cafeteria? Is there a health insurance option available to you under the 125/cafeteria? Does your employer require proof that the cash they give you goes toward insurance premiums? Or do they pay your insurer directly?
My thinking is that if there was a health insurance option under the cafeteria plan and you declined it in favor of cash for your own plan, you definitely do not qualify for the self-employed health insurance deduction because you were clearly eligible to participate in an employer's subsidized plan.
But if the 125/cafeteria plan does not have a health insurance option, then ... I dunno. I've been thinking about this question since last night and I can reason it through both ways. If I were the IRS trying to skewer you, I'd make the argument that you haven't established your health insurance under your business and that you have this health insurance because your employer gives you some money to go out to buy insurance. (But if you had this same insurance plan before you had the job, that would be an argument in favor of your health insurance being established under your business.)
The most logical answer, to me, is that this is very much like having a health plan through work for which the employer pays, for example, 90% of the premiums and the employee pays 10%. In that case, if the employee itemizes deductions, we get back to the excess of 7.5% of AGI business. Assuming an AGI of $30,000, the employee could only deduct any amounts in excess of $2250 (=$30,000 *.075) So if the employee paid $3000 for premiums, the allowed deduction would be $750. So you see how this is only beneficial if you itemize your deductions and the amounts you personally paid toward your premiums are greater than 7.5% of your adjusted gross income. (This assumes no other medical expenses.)
But taxes are not logical and this is not my area of practice, so please don't take this as professional advice.
(As an aside, this is one part of the IRC that truly irks me and makes me shake my fist at Congress - it screws over people who buy their own insurance but are not self-employed. But I digress.)
posted by stowaway at 10:18 PM on February 10, 2013
There are a few different issues being conflated here by the responders. Maybe I can pull back the curtain on TurboTax for you so you have a better sense of what is going on:
- It doesn't necessarily "make sense" that health insurance could be a business expense, but there are many things in the Internal Revenue Code that don't make sense. It is what is.
- For a self-employed person's health insurance premiums to be deductible, the plan has to be established "under the business." (Also, the business has to have a net profit.) But you can have it in the name of the individual.
- If you are a self-employed person, you can deduct 100% of your medical insurance premiums. (For a self-employed person, the excess above 7.5% of AGI that COD refers to does not apply.) It actually gets put it in a special spot on 1040 (line 29) and not on Schedule C.
You said that your health insurance is in your name and you receive tax-free cash from your employer for health insurance. Do you mean that you selected the "cash" option of your 125/cafeteria? Is there a health insurance option available to you under the 125/cafeteria? Does your employer require proof that the cash they give you goes toward insurance premiums? Or do they pay your insurer directly?
My thinking is that if there was a health insurance option under the cafeteria plan and you declined it in favor of cash for your own plan, you definitely do not qualify for the self-employed health insurance deduction because you were clearly eligible to participate in an employer's subsidized plan.
But if the 125/cafeteria plan does not have a health insurance option, then ... I dunno. I've been thinking about this question since last night and I can reason it through both ways. If I were the IRS trying to skewer you, I'd make the argument that you haven't established your health insurance under your business and that you have this health insurance because your employer gives you some money to go out to buy insurance. (But if you had this same insurance plan before you had the job, that would be an argument in favor of your health insurance being established under your business.)
The most logical answer, to me, is that this is very much like having a health plan through work for which the employer pays, for example, 90% of the premiums and the employee pays 10%. In that case, if the employee itemizes deductions, we get back to the excess of 7.5% of AGI business. Assuming an AGI of $30,000, the employee could only deduct any amounts in excess of $2250 (=$30,000 *.075) So if the employee paid $3000 for premiums, the allowed deduction would be $750. So you see how this is only beneficial if you itemize your deductions and the amounts you personally paid toward your premiums are greater than 7.5% of your adjusted gross income. (This assumes no other medical expenses.)
But taxes are not logical and this is not my area of practice, so please don't take this as professional advice.
(As an aside, this is one part of the IRC that truly irks me and makes me shake my fist at Congress - it screws over people who buy their own insurance but are not self-employed. But I digress.)
posted by stowaway at 10:18 PM on February 10, 2013
Response by poster: Stowaway, I'm just gonna call the IRS.
I'm glad you see the conundrum, and I'm not crazy for thinking it's something that doesn't just have a simple answer.
For what it's worth, my employer does not offer a plan that I opted out of to get my own insurance. They just deduct the amount I asked them to deduct so that I can pay my premiums tax-free (and they do require my premium invoices for their own paperwork, to justify the tax-freeness of that portion of my paycheck). However, the amount they deducted fell short of the full premium cost (my mistake). It's not enough, even over the year, for me to go crazy about (like I said, the difference is less than what it would cost for a competent accountant, even for a simple return) . But when I saw that line while entering my one 1099, I thought it might just be something I can deduct - and I am really curious in general.
posted by mhz at 6:21 AM on February 11, 2013
I'm glad you see the conundrum, and I'm not crazy for thinking it's something that doesn't just have a simple answer.
For what it's worth, my employer does not offer a plan that I opted out of to get my own insurance. They just deduct the amount I asked them to deduct so that I can pay my premiums tax-free (and they do require my premium invoices for their own paperwork, to justify the tax-freeness of that portion of my paycheck). However, the amount they deducted fell short of the full premium cost (my mistake). It's not enough, even over the year, for me to go crazy about (like I said, the difference is less than what it would cost for a competent accountant, even for a simple return) . But when I saw that line while entering my one 1099, I thought it might just be something I can deduct - and I am really curious in general.
posted by mhz at 6:21 AM on February 11, 2013
This thread is closed to new comments.
IANAA, however I do do my taxes every year and have had to deal with large health expenditures.
posted by COD at 6:42 PM on February 9, 2013