Employers May Deduct The Cost Of Health Coverage For Employee-Spouses
In an ISP coordinated issue paper, the Service has concluded that an employer who employs his spouse may deduct the cost of accident and health coverage for the employee-spouse if the spouse receives the coverage as an employee. The Service also concluded that the employee-spouse may exclude coverage costs and medical reimbursements from gross income.
An employer hires his spouse as an employee and provides family accident and health coverage for the employee-spouse through a self-insured medical expense reimbursement plan or by purchasing an accident and health insurance policy. The employee-spouse excludes the cost of the health coverage and medical expense reimbursements from gross income, while the employer-spouse deducts the cost of the coverage and receives benefits under the plan as a member of the employee-spouse’s family.
As long as the spouse is a bona fide employee, the Service said, the employer may deduct the cost of accident and health coverage, including medical expense reimbursements, for the employee-spouse. Similarly, a spouse who is a bona fide employee may exclude the cost of accident and health coverage or medical expense reimbursements from gross income.
The service noted that the extent and nature of the spouse’s involvement in the employer’s business are “critical” for purposes of determining whether the spouse qualifies as an employee. Although part-time work doesn’t negate employee status, the IRS added, the performance of “nominal or insignificant services that have no economic substance or independent significance may be challenged.
Self-Employed Health Insurance Deduction
You may be able to deduct the amount you paid for health insurance for yourself, your spouse, and your dependents if any of the following applies.
- You were self-employed and had a net profit for the year.
- You used one of the optional methods to figure your net earnings from self-employment on Schedule SE.
- You received wages in 2007 from an S corporation in which you were a more-than-2% shareholder.
- Health insurance benefits paid for you may be shown in box 14 of Form W-2.
The insurance plan must be established under your business. But if you were also eligible to participate in any subsidized health plan maintained by your or your spouse’s employer for any month or part of a month in a year, amounts paid for health insurance coverage for that month cannot be used to figure the deduction. For example, if you were eligible to participate in a subsidized health plan maintained by your spouse’s employer from September 30 through December 31, you cannot use amounts paid for health insurance coverage for September through December to figure your deduction. Also, amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction.
