Until about 2009, the IRS position was that a self-employed taxpayer (including partners and more than 2% S corporation shareholders) could not deduct Medicare premiums above the “line” as part of the self-employed health insurance deduction. In 2010, the instructions for form 1040 and other related forms had added a section indicating you could deduct these premiums above the line. The problem was that there was no actual formal announcement from the IRS just a change in the instructions.
We picked up on this right away and started deducting the Medicare premiums as a adjustment to gross income on page one of the return. Now, over two years later, the IRS announced a formal change in the long-held position on the detectability of Medicare premiums (normally withheld from Social Security Benefits), which in most part agree with the 2010 instructions.
Take note that for S corporation shareholders and partnerships, a notice issued previously by the IRS requires that these premiums actually be reimbursed by the corporation (or paid directly by the employer, which is not normally applicable with Medicare premiums). This requires a check be issued by the employer to the employee paying the Medicare premiums. These payments would then be included in the income of the employee (deducted by the employer) and then deducted on page 1 of form 1040 of the employee. If these guidelines are not followed completely, then the deduction is not allowed.
