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subsidized health plan rules of 162(l) and SCorp owner

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#1 Dolores


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Posted 19 July 2007 - 10:56 AM

IRC Section 162(l)(2)(B) says that a self-employed individual is not entitled to the above-the-line deduction for health premiums if he/she is eligible to participate in any subsidized health plan maintained by any employer of the taxpayer of the spouse of taxpayer. What is the definition of "subsidized health plan" for this purpose?

If spouse's employer provides employee-only coverage for spouse but no employer-provided coverage for family, is that a subsidized health plan? If spouse's employer pays 10% of the cost of family coverage for spouse, is that a subsidized health plan?

#2 J Simmons

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Posted 19 July 2007 - 11:49 AM

I've not seen the term "subsidized health plan" defined (but there may be a definition for purposes of its use in IRC Section 162(l)(2)(B)).

Barring some definition that others may point to, I would think that the situation of the spouse's employer paying 10% of the premium cost for family coverage (which would include the S corp owner) would be 'subsidized health plan'.

The situation where the spouse's employer pays all (or part) of the premium cost for coverage of the spouse (that employer's employee) but not for any coverage for the S corp owner is a closer call. The S corp owner might yet be eligible for coverage in that other employer's health plan (having to pay 100% of the premium cost for the S corp owner's coverage), and it could be said to be subsidized because that other employer is paying the premium cost (or at least part of it) for the spouse.

The interpretive argument cutting the other way is that while the S corp owner is eligible for coverage, the S corp owner's coverage is not subsidized to any extent by that other employer.

However, since we are talking about an above-the-line deduction on the S corp owner's Form 1040, personal tax return, it might be that if filing married/jointly, the subsidy by the other employer of the spouse's coverage is enough to 'wire' the situation and prevent them from claiming the S corp owner's health premiums as an above the line since the S corp owner is eligible and looking at if as 2-party coverage and 1 of the 2 H&W filing jointly has subsidized health plan coverage. If married filing separately, it might nevertheless be allowed as no one whose return then the S corp owner's 1040 is would have any subsidized coverage.

Great question; I hope others weigh in with some good info.
John Simmons

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

#3 taxesquire


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Posted 20 July 2007 - 09:59 AM

"Subsidizes" can be quite a general term. GASB - an organization relating to governmental financial disclosures - has determined that an employer "subsidizes" the cost of health insurance for retirees if all retirees are grouped together with employees to establish premiums b/c the group rate is going to be less than what could be obtained on an individual bases. Even if the employer does not make any payment for towards those premiums, there is a subsidy.

Now the GASB def does not apply here, but I think COBRA looks at things similarly. In determining what benefits COBRA applies to, it generally does not apply to the supplemental, individual policies that an employer might offer (usually things like supplemental cancer coverage, for ex). I think (but am not sure) that this is because the IRS realizes that if an employee is not benefiting from the employer relationship, there's no reason for COBRA.