Is Our Health Insurance Premium Deductible When Determining My Wife's Self-Employment Earnings?

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Jan 9 2020 - 7:25am

My spouse starting drawing retirement benefits before FRA. Then she decided to work part-time as a self-employed sole proprietor. She has gone over the earnings limit this year and we need to let the Social Security Administration know. What I can't figure out is whether for the earnings limits reduction, "net earnings from self-employment" includes the deduction for our family's health insurance. I know that when you pay self-employment taxes, the deduction for health insurance is not included in that calculation. The health insurance deduction also does not appear on Schedule C for self-employment work but is deducted against self-employed income on another line in the tax form. However, the health insurance premium deduction is clearly allowed as a business expense against self-employed income. Whether the health insurance deduction applies to the self-employment net earnings as far as the earnings limit goes would reduce the net earnings by $31,000, a huge difference. This would impact how long and in what amounts retirement benefits would be withheld going forward.

Your thoughts would be most appreciated.

Hi,

My expertise is limited to Social Security benefits, not tax regulations, but I can tell you that for earnings test purposes Social Security counts the amount shown on line 4 of Schedule SE of your federal tax return (https://www.irs.gov/pub/irs-pdf/f1040sse.pdf). That's also the amount on which you're required to pay self-employment taxes. That figure is derived from Schedule C (less 7.65%), or Schedule F in the case of farm income, so as far as I know only business expenses listed on Schedules C or F can be deducted when determining your countable net earnings from self-employment.

Best, Jerry