Are COBRA health-care family payments tax deductible?
COBRA health insurance payments are payments made to continue health
insurance that was previously provided to you by a former employer.
does not refer to a snake, but instead to the Consolidated Omnibus
Budget Reconciliation Act that created the law that requires employers
of a certain size to allow employees to continue their health insurance
coverage for a period following termination of employment. Usually
COBRA is offered for 18 months; in certain cases and certain states
it can be extended or converted to an individual or family plan.
Health insurance payments are generally allowed as
a medical deduction if you itemize your deductions and your total
medical expenses, such as premiums, co-pays, deductibles, transportation
and medication, exceed 7.5 percent of your adjusted gross income.
A self-employed individual is allowed to deduct health
insurance coverage as an adjustment to adjusted gross income rather
than as an itemized deduction subject to the AGI limitation. This
means that a self-employed individual can benefit on his or her
tax return from the payment of health insurance coverage without
regard to itemizing deductions or exceeding the threshold. However
to qualify for this deduction the insurance plan must be established
under your trade or business. Since the COBRA coverage was not established
under your trade or business, the health insurance payments would
appear not to qualify for this above-the-line
deduction to arrive at AGI.
In my experience, it's difficult if not impossible
to obtain coverage for a one-person health insurance plan, so even
though your coverage under COBRA is not a deduction as an adjustment
to AGI, you're better off hanging on to it and if possible converting
it. If you quit your job to become your own boss, don't look to
deduct your COBRA payments as an adjustment to AGI. Instead, you'll
need to claim them as an itemized deduction.