Dear Tax Talk,
In June 2007, at the time of my divorce, when I was a federal government employee, the court ordered me to continue my ex-wife's BlueCross BlueShield health plan under COBRA coverage for a period of three years after the divorce became final in December. This amounts to $335.88 per month, or more than $4,000 per year. Am I entitled to deduct this court-ordered expense on my federal tax return? And if so, where is it shown on my 1040?
-- Jack
Dear Jack,
COBRA coverage means the continuation of health insurance benefits when employment is terminated. It is usually available for 18 months, but in your case there must be an exception that allows an additional period of coverage.
Amounts paid for health insurance are considered medical expenses. Medical expenses are itemized deductions and are deductible if the total of all medical expenses exceeds 7.5 percent of adjusted gross income.
Amounts you pay to or for the benefit of a former spouse can be considered alimony. Alimony is deductible by the payer as an adjustment to gross income and includible in the income of the recipient -- your ex-wife.
You can generally include medical expenses you pay for yourself, as well as those you pay for someone who was your spouse or your dependent either when the services were provided or when you paid for them.
Since you have divorced, your monthly payments are not deductible. If you had prepaid the COBRA coverage for all three years before divorcing, you could have claimed the deduction in the year paid.
A payment to or for the benefit of a spouse under a divorce or separation instrument is alimony if the spouses do not file a joint return with each other and all the following requirements are met:
- The payment is in cash.
- The instrument does not designate the payment as not alimony.
- The spouses are not members of the same household at the time the payments are made.
- There is no liability to make any payment after the death of the recipient spouse.
- The payment is not treated as child support.
Each of the conditions is discussed in detail in IRS Publication 504. Based on the information you provided, your payments may be deductible as alimony in the year paid. However, your ex-wife will have income if you deduct the payment and she can claim the COBRA as medical expenses.
Because the IRS matches the tax returns of divorced couples, you need to advise your ex-wife of your tax treatment so she can act accordingly and both of you can avoid unnecessary IRS inquiries.
Read more Tax Talk columns.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.
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