1 - YOU were laid off. YOU continue to pay premiums for YOUR former employer's coverage under COBRA. YOU deduct those premiums on Schedule A.
Not quite. This is a situation that the IRS publications do not directly address, unfortunately. The basic rule for the deduction of self-employed medical insurance deductions is found in Internal Revenue Code (IRC) section 162(l)(1), which provides:
"Allowance of deduction.--In the case of a taxpayer who is [self-employed], there shall be allowed as a deduction under this section an amount equal to the amount paid during the taxable year for insurance which constitutes medical care for--
(A) the taxpayer,
(B) the taxpayer's spouse,
(C) the taxpayer's dependents, and
(D) any child (as defined in section 152(f)(1)) of the taxpayer who as of the end of the taxable year has not attained age 27."
(I put the term "self-employed" in brackets to make the provision easier to read; the actual statute instead refers you to another code section which then goes on to define self-employed individuals.)
There is, however, and important limitation on this deduction, in paragraph 2 of § 162(l), which states:
"(B) Other coverage.--Paragraph (1) shall not apply to any taxpayer for any calendar month for which the taxpayer is eligible to participate in any subsidized health plan maintained by any employer of the taxpayer or of the spouse of, or any dependent, or individual described in subparagraph (D) of paragraph (1) with respect to, the taxpayer. The preceding sentence shall be applied separately with respect to--
(i) plans which include coverage for qualified long-term care services (as defined in section 7702B(c)) or are qualified long-term care insurance contracts (as defined in section 7702B(b)), and
(ii) plans which do not include such coverage and are not such contracts."
Note that it disallows as a self-employed health insurance deduction (a § 162(l) deduction) any premiums paid on an insurance plan subsidized by an employer. The term subsidized means that the employer pays some part of the premium cost. The normal COBRA plan requires that the employee pay 100% of the cost of the insurance plus a 2% handling fee. It is therefore not subsidized by the employer, and thus the premiums paid for that insurance is eligible for the § 162(l) deduction. This is something that IRS national office counsel noted in advice to a field attorney: "With
respect to COBRA continuation coverage, we understand that in the
typical situation a group health plan requires premium payments of 102
percent of the applicable premium, as permitted by section
4980B(f)(2)(C) of the Code. Therefore, an individual receiving COBRA
continuation coverage from such a plan would not be receiving subsidized
coverage within the meaning of section 162(l)." IRS FSA 1995 WL 1918547.
There was, however, a program in which COBRA payments were subsidized 35% by the employer and then the employer claimed a credit for that from the government as part of the economic recovery effort. This was called the COBRA premium assistance credit, and it ended in May, 2010. Moonrock refers to his plan qualifying for a subsidy, and I assume this is the subsidy to which he refers. Thus, premiums he paid for any month in which the plan was subsidized (i.e. through May) would NOT qualify for the self-employed health insurance deduction. Premiums paid in any month that were not subsidized (from June onward) would qualify for the self-employed insurance deduction. So, moonrock will need to look at each month separately to determine which months were subsidized and which were not.
2 - YOU were laid off. YOU did not continue to pay premiums for YOUR former employer's coverage under COBRA. Instead, you bought medical insurance through your business for you and your family and your wife's employer did not provide health insurance of any kind. You deduct those premiums on Line 29, but only if you meet the qualifications for that deduction.
3 - YOU were laid off. YOU did not continue to pay premiums for YOUR former employer's coverage under COBRA. Instead, you bought medical insurance through your business for you and your family but your wife's employer does provide medical coverage, where she pays part of the premium for her and dependent coverage and the employer pays the rest. Her cost would be deductible on Schedule A. Your cost for the business coverage would not be deductible at all because you are eligible to be covered under her employer's subsidized plan.
Correct, but there is something important to note here. The deduction under § 162(l) is not allowed if the taxpayer or his/her spouse are ELIGIBLE for employer subsidized medical insurance. Thus, if Moonrock's spouse was eligible for health insurance provided by his/her employer but the spouse declined to take it and they instead opted for Moonrock's COBRA coverage for the family, Moonrock will be ineligible for the § 162(l) deduction.