No, both partners are not allowed a deduction under section 162(l) for the cost of health insurance premiums paid out of community property funds. Only the self-employed partner who is treated as an employee within the meaning of section 401(c)(1) (the employee partner) may be allowed a deduction under section 162(l) for the cost of their own health insurance. The portion of the cost attributable to the non-employee partner’s coverage is not deductible by either the employee partner or the non-employee partner under section 162(l).
Section 162(l) allows a deduction for health insurance costs for self-employed individuals, but it is limited to the amount paid for insurance that constitutes medical care for the taxpayer, their spouse, dependents, or a child who has not attained age 27 by the end of the taxable year. The deduction is not allowed to the extent that the amount of the deduction exceeds the taxpayer’s earned income derived from the trade or business with respect to which the plan providing the medical care coverage is established. Additionally, the deduction is not allowed for any month in which the taxpayer is eligible to participate in any subsidized health plan maintained by an employer of the taxpayer or the taxpayer’s spouse.
In the case of registered domestic partners, if one partner is self-employed and pays health insurance premiums for both partners out of community property funds, the deduction under section 162(l) is only available for the self-employed partner’s health insurance costs. The portion of the premiums attributable to the non-employee partner’s coverage is not deductible under section 162(l).
Sources:
§ 162. Trade or business expenses
Rev. Rul. 2010-4
CCA 201228037
§ 1.162(l)-1. Deduction for health insurance costs of self-employed individuals.
CCA 200524001
§ 1.162(l)-0. Table of Contents.
