Can Cobra be a Business Expense ?

"Gary" wrote

Nope. They are a medical expense, rightfully deducted on Schedule A if, when combined with all other qualified medical expenses, they exceed 7.5% of your AGI.

If his "other job" is as an independent contractor and he files a Schedule C, he should be able to deduct some of it on there.

Stu

No, he cannot. Health insurance for the self-employed is not deducted on Schedule C. The cost of premiums goes on Line 29 of the 1040 if they meet the criteria. In this case they don't---- per 1040 line 29 instructions "do not include amounts for any month you were eligible to participate in an employer-sponsored health plan "

Cobra is an employer sponsored plan.

Paul is correct, it goes on Schedule A.

Thanks for the clarification. Personally I never rely on instructions to determine what the law is.

I haven't researched this so I may be wrong. But if you look at §162 (l) it deals with deduction of health insurance premiums for the self employed. In subsection 2(B) it says deductibility doesn't apply,

"to any taxpayer for any calendar month for which the taxpayer is eligible to participate in any subsidized health plan maintained by any employer of the taxpayer or of the spouse of the taxpayer."

While COBRA might be an employer sponsored plan, it's certainly not subsidized for the former employee. In addition, during the COBRA period, the person is no longer an employee of the employer.

Is there a different rule that applies?

Stu

Agree

In past discussions on this point, people here felt that Cobra payments are allowable on Line 29 if the former employer is not paying any subsidized part of them. Typically, under Cobra, the former employer pays nothing, and so it is not "employer sponsored". Cobra is a law that makes private insurance available to some ex-employees, but it is still private insurance.

(If information exists to contradict this I'd be interested.)

Steve

COBRA coverage is not employer sponsored health insurance nor is it a health plan subsidized by an employer. COBRA (an amendment to ERISA that was passed in 1985) provides the ability for a laid off worker and family who "have lost their employer sponsored health plan" to continue coverage for 18 months. Many laid off workers do not continue coverage because they can not afford to pay 100% of the premium. The recently passed ARRA, allows for a

65% subsidy of the premiums for nine months for eligible workers who are laid off. However, I don't believe this can be considered an employer subsidy as the federal government reimburses employers and/or insurance companies for the 65%.

Therefore, I must conclude that if the self-employed individual has a business plan that calls for health insurance for oneself, spouse and dependent children, the premiums are deductible as an adjustment to income.

COBRA premiuims are a legitimate medical insurance cost to go on line

29 if you have a "plan", to pay medical premiums for your family, if it otherwise qualifies.

ed

What if you were a federal employee, and were laid off, and you took COBRA plus the 65% federal government subsidy, and became self- employed?

I see no difference in this scenario. IMHO, the subsidy is not an employer subsidy.