Health premiums for sole proprietor

[ombskid]

An accountant says new regs require health premiums paid by/for sch c filers must now be on the sch c, where before they were deducted on the 1040. The result is lowering comp for any retirement plan purposes.

Anybody heard anything about this?

[masteff]

The guy's only 1/2 right. For tax year 2010 only, SE Health Insurance will be deductible for purposes of the SE tax. It's in the new Small Business Jobs Act, Section 2042 (same new law that contains the new Roth provision that's been discussed on the board).

From the Summary:

"Deductibility of Health Insurance for the Purposes of Calculating Self-Employment Tax. Under current law, business owners are not permitted to deduct the cost of health insurance for themselves and their family members for purposes of calculating self-employment tax. This provision would allow business owners to deduct the cost of health insurance incurred in 2010 for themselves and their family members in the calculation of their 2010 self-employment tax."

From the Act:

"(a) IN GENERAL.—Paragraph (4) of section 162(l) of the Internal Revenue Code of 1986 is amended by inserting ‘‘for taxable years beginning before January 1, 2010, or after December 31, 2010’’ before the period."

I'm not aware of any regs being issued yet and even so, those rarely specify the form that's used. So my answer is it's too early to know for certain, but yes, there's a possibility for 2010 that retirement eligible income will go down as a result of SE income going down.

Of course I could be missing something from earlier laws.

edited for minor clarification