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Posted by Neil on April 21, 2008, 11:19 am
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> Neil wrote:
>> I am an independent contractor who has worked for a client for many
>> years.
>> The client decided to pay for health insurance for me. However, since I'm
>> not an employee, I couldn't go on their plan. Instead, I pay for the
>> health
>> insurance myself, and they reimburse me each month for the expense.
>
>
> The only kind of "reimbursement" that a client can provide to a sole
> proprietor is for travel, meals, entertainment. See "Rules for Independent
> Contractors and Clients" in Pub 463. Otherwise, whatever they pay you is
> part of your gross income for the activity.
>
>
>> The problem arises in how to handle this on my taxes. If I count the
>> reimbursement as income and then list the health insurance premiums under
>> "Self-employed health insurance deduction" (form 1040, line 29), then the
>> expense comes off the 1040, but not the Schedule C, resulting in my
>> paying
>> 15% self-employment tax on the amount.
>
> Yup. So be sure you are setting your overall fees appropriately to cover
> your overhead for being self-employed. As a sole proprietor, none of your
> clients have any say whatsoever on how you run your business, including
> how you choose to provide health insurance for yourself. You may think of
> it as a "reimbursement", but it is not.
>
>
>> On the other hand, I could list it in the Schedule C under "Office
>> Expense"
>> or "Other Expense." But I'm not sure if that's right.
>
> Nope, it's not right.
>
>> Last, I could just not list it on my income in the first place, but list
>> the
>> amount on the Schedule C that doesn't include the insurance premium
>> reimbursements, since they are, after all, reimbursements, not income.
>> Then
>> I wouldn't have to list the expense anywhere.
>
> That's even more incorrect. You are failing to report income.
>
> Remember also, if you *could* have been covered under a spouse's employer
> plan, even if you are not, you are not eligible for a SE health insurance
> deduction.
>
> -Mark Bole
>
Thanks, Mark. That's very helpful.
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