CPA Journal (May 1994)

Spousal Medical Reimbursement

The technique is not new, but it is newly confirmed. A self-employed person hires his or her spouse and provides medical reimbursements plan coverage to the spouse.The reimbursements paid to the spouse are excludable from income and the self-employed person deducts the cost of the reimbursement as a business expense on his or her Schedule C.

For a self-employed person who is able to hire his or her spouse, the technique effectively circumvents the 7.5% medical deduction threshold, which must be exceeded before medical expenses are deductible as itemized deduction. (If the spouse is also a "highly compensated individual" the coverage must be provided on a non-discriminatory basis.) The IRS recently confirmed the accuracy of this tax result.

Source:
IRS Letter Ruling 9409006 and Rev. Rul. 71-588, 1971-2-C. B. 91 taken from the CPA Journal (May, 1994)

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