Self-employed health insurance deduction.

• Author: Marchbein, Joe
• Position: Brief Article

One of the dilemmas of the past tax season was deciding whether to prepare individual Federal income tax returns in which the 25% health insurance deduction provided for in Sec. 162(1) was claimed. The provision in the law for this deduction expired Dec. 31, 1993 amid speculation it would be extended at least through Dec. 31, 1994.

The deduction was permanently restored when Congress enacted H.R. 831, the Self-Employed Health Insurance Act, which President Clinton signed on Apr. 11, 1995. For calendar year 1994, the deduction is 25%, increasing to 30% for subsequent years. With the resurrection of the law, a review of one of its nuances is appropriate.

Sec. 162(1) does not allow the 25% deduction if the self-employed person or spouse is eligible to participate in any subsidized health plan maintained by any employer of the spouses. Thus, if the spouse of a self-employed person is provided single coverage by her employer and may add family coverage for a price, the self-employed person may not deduct the cost of "buying up" if paid by his business. The wording of Sec. 162(1) also appears broad enough to disallow the deduction if the self-employed spouse finds his own coverage rather than "buying...