A website visitor asks the following: “I am in a same-sex marriage and am self-employed. If I put my spouse on an insurance policy, can I take the full cost of the insurance as a deduction for self-employed health insurance?”
This is an excellent question. Let’s look at what the law says about a self-employed person deducting the cost of health insurance.
Code Section 162(l) provides for a deduction from income for health insurance costs of a self-employed person. The insurance must be for the taxpayer, the taxpayer’s spouse, the taxpayer’s dependents, or the taxpayer’s children up to the age of 27.
The Defense of Marriage Act prevents same-sex couples from being considered “spouses” for federal tax purposes. But if you are self-employed and claim your spouse as a dependent, you could include the cost of their insurance as a deduction for purposes of the self-employed insurance deduction.
What About the “Medical Dependent” Issue?
In other posts, I have talked about how you don’t have to claim someone as a dependent on your tax return in order for that person to be your “medical dependent” for purposes of taking an itemized deduction for their medical expenses and for not being taxed on the value of employer-provided health insurance. I don’t think the definition of “medical dependent” applies to the self-employed health insurance deduction.
The reason is, the “medical dependent” definition comes from Sections 105(b) and 213, and Regulation 1.106-1, all of which have language that modifies the traditional definition of dependent and makes it possible for someone to be a “medical dependent” without you claiming them as a dependent on your tax return. This definition applies to not being taxed on employer-provided insurance and for taking an itemized deduction for medical expenses.
But Section 162(l) just says “dependents,” with no modifying language. I think this means you must claim a dependency exemption for your spouse in order to claim their portion of insurance expenses as a deduction for purposes of the self-employed insurance deduction.