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Ministers' Potential to Claim the SE Health Insurance Deduction

Question: 

A minister who has filed Form 4361 exempting himself from SE Tax is unsure of his eligibility to claim the Form 1040 SE Health Insurance Deduction. Is he able to claim the Line 29 deduction?

Answer: 

First, whether a minister has filed Form 4361 is irrelevant to eligibility to claim the deduction. The presence or absence of Schedule SE within his tax return for the purposes of calculating self-employment tax is not the determinant of eligibility. Rather Schedule C which reports the income of an independent contractor business is the reference point for determining the amount of a SE health insurance deduction.

A minister whose sole income is from his church as a common-law employee may sometimes erroneously report his employment income on Schedule C. He may have been led astray by his congregation's simultaneous error of issuing him Form 1099-MISC which is intended for independent contractors instead of the required Form W-2 for employees.

However, some ministers are correctly required to report ministerial income on Schedule C. Sufficient independent contractor income from services such as weddings, funerals, speaking engagements outside of his employment, and truly itinerant-type income may very well enable a minister who secures his health insurance based on that income to claim the SE health insurance deduction.

If the individual is truly a self-employed individual, he may be able to claim the SE health insurance deduction on Line 29 of Form 1040 according Internal Revenue Service Publication 517. But before one claims this deduction, he should consider several factors:
·         Are the premiums subsidized by an employer?
·         Was the plan acquired through the Marketplace and enjoying a premium tax credit?
·         Does the deduction exceed net earnings from the business under which the insurance plan was established?

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