Submitted By: Patrick
Answered: August 6, 2013 8:30 am

My wife was laid off from a job and took COBRA. Now she’s become an independent contractor filing Schedule C to report her income. Can she deduct the COBRA premiums that she pays for as an adjustment to gross income for self-employed health insurance?

It’s not clear. The IRS has not issued any official guidance on this very common question as yet. The law says that the policy must be established, or considered to be established, under her business. The IRS has decided that premiums for Medicare qualify for the self-employed health insurance deduction (CCA 201228037); clearly, Medicare is not a plan established by the business but is treated as “considered to be established.” It could be argued that COBRA should be similarly treated as self-employed health insurance and that the premiums should be deductible from gross income (rather than as an itemized deduction) as long as she is otherwise qualified (i.e., she is profitable and does not qualify for any employer-subsidized health coverage). Best bet: Decide on your best course of action with your tax advisor.

Tax Glossary

Legally separated

A husband and wife who are required to live apart from each other by the terms of a decree of separate maintenance. Payments under the decree are deductible by the payor and taxable to the payee as alimony.

More terms