The IRS Office of Chief Counsel recently advised that self-employed individuals may deduct Medicare premiums from their self-employment income. This is a reversal of a long-held IRS stance and a clarification of IRS publications.

Chief Counsel Advice (CCA) 201228037 clarifies that because Medicare is insurance that constitutes medical care under Internal Revenue Code Section 162(I) it is similar to other health insurance and its premiums can similarly be deducted. Premiums for coverage of a self-employed taxpayer’s spouse and qualifying child or other dependents can be deducted as well. Children can include those up to age 27.

According to the CCA, premiums for all Medicare parts are deductible.

For purposes of the deduction, a self-employed individual can be a sole proprietor or a partner or S corporation employee who is a more than 2% shareholder on whose behalf the partnership or S corporation pays the premium. In addition, the partner of S corporation employee-shareholder may pay the premium directly and be reimbursed by the partnership or S corporation. In either case, the amount must be properly reported and included in the partner’s or employee-shareholder’s gross income.

Taxpayers who failed to deduct Medicare premiums for prior tax years within the statute of limitations may file amended returns to claim the deductions.

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