Where do I enter payments the partnership made for partners’ self-employed health insurance?
The manner in which the payments for partners’ health insurance were made determines whether they are deductible by the partnership and where they are entered.
See IRS Publication 541 Partnerships and Publication 535 Business Expenses to determine how the payments are to be reported. Publication 541 states:
"Self-employed health insurance premiums.
Premiums for health insurance paid by a partnership on behalf of a partner, for services as a partner, are treated as guaranteed payments. The partnership can deduct the payments as a business expense, and the partner must include them in gross income. However, if the partnership accounts for insurance paid for a partner as a reduction in distributions to the partner, the partnership cannot deduct the premiums.
A partner who qualifies can deduct 100% of the health insurance premiums paid by the partnership on his or her behalf as an adjustment to income. The partner cannot deduct the premiums for any calendar month, or part of a month, in which the partner is eligible to participate in any subsidized health plan maintained by any employer of the partner, the partner’s spouse, the partner’s dependents, or any children under age 27 who are not dependents. For more information on the self-employed health insurance deduction, see chapter 6 in Publication 535."
Data Entry in Drake Tax
For health insurance payments made by the partnership that are deductible by the partnership
- Enter the deductible total in the Partner’s health insurance field on the DED screen, line 10. This amount appears on page 1, line 10 (Guaranteed payments to partners), flows to the Schedule K (Partners' Distributive Share Items), line 13, and generates a statement.
- This amount flows to the partner’s Schedule K-1, box 13, and is also included in the amount in box 4 (Guaranteed payments) of the K-1.
- Amounts are allocated to partners based on individual partnership percentages. Special allocations of these payments to partners may be made by using the SA link for line 13M located on the K screen. See Related Links below, or Partners Special Allocations (1065) for more information.
Note: The DED screen line 19 amount is for employee health insurance plans and should not include amounts paid for insurance that constitutes medical care for a partner, a partner’s spouse, or a partner’s dependents.
For health insurance payments made by the partnership that are not deductible by the partnership (those accounted as a reduction in partner distributions),
- Enter the total payments on the K screen under line 13d - Other Deductions in the M field (Amount paid for medical insurance). This amount appears on line 13d, Other Deductions, on Schedule K (Partners' Distributive Share Items) of the return, and generates a statement.
- On each partner’s screen K1 in the Part III: K-1 Direct Entries section, select the option Health insurance distribution reduction. The amount reported on line 13M will be carried to the partner's Schedule K-1, box 13, Other deductions (code M).
- The amount allocated to each partner for line 13M is based on partner’s percentage. If the amount paid for medical insurance should be allocated differently, adjustments may be made by using the SA link on the K screen.
Health insurance payments can also be entered on screen 8825 - Rental Real Estate. This affects the amounts reported on Schedules K and K1.