Self-Employed Health Insurance Deduction
Have you taken advantage of the self-employed business owner health insurance deduction?
Self-employed business owners may deduct health insurance premiums from gross income, for a reduction in taxable income.
How the Self-Employed Health Deduction Works
As a self-employed business owner, you may deduct the cost of health insurance for yourself and your spouses, dependents, and children under 27 years old as of the end of the tax year. Under specific circumstances, you may also be able to deduct Medicare premiums and premiums for long-term care insurance.
To quality the plan must have been established under your business.
How Do I Qualify for this Deduction?
You can qualify depending on your status as a business owner and your profits in one of these business types:
- If your business reported a net profit for the year on Schedule C or Schedule C-EZ. This would be the case if you are a sole proprietor or single-member LLC owner.
- If you are a partner with net earnings for the year, as reported on your Schedule K-1 (the form that shows your annual earnings from the partnership)
- If you used an optional method to figure your net earnings from self-employment on Schedule SE, or
- If you received wages from an S corporation in which you were a more-than-2% shareholder.
How Do I Get This Tax Deduction?
The premiums for your self-employed health insurance are deducted from your gross income on your personal tax return on page 1 (line 29), before your Adjusted Gross Income is calculated.
First, you will need to determine the amount of health insurance premiums for the year, for yourself and eligible dependents.
Then, will need to use Worksheet 6-A. Self-Employed Health Insurance Deduction Worksheet, from IRS Publication 535 - Business Expenses. You'll need to use a different worksheet if your insurance is through one of the marketplace exchanges.
The form you ask you:
The amount paid in the year for "insurance coverage established under your business (or the S corporation in which you were a more-than-2% shareholder) for you, your spouse, and your dependents."
For a qualified long-term care plan, you will need to enter the amount you paid, subject to a maximum payment amount, depending on your age. Here's the schedule:
- $390— if that person is age 40 or younger
- $730— if age 41 to 50
- $1,460— if age 51 to 60
- $3,900— if age 61 to 70
- $4,870— if age 71 or older
Then you will need to enter the net profit from your business. The amount of deduction is limited based on your business profit. No profit, no deduction.
The form is complicated. Complete the worksheet (or have your tax preparer do this) and submit it with your tax return.
Deducting Long-term Care Insurance Premiums
Premiums you pay for a long-term care insurance policy may also be deductible. The deductions are limited to the lower of the amount you actually pay or a premium dollar limit based on your age.
To qualify for this deduction, you must be paying premiums for a qualified long-term care insurance contract that meets specific requirements, including that it must be renewable. The policy must provide specific long-term care services.
Are There Restrictions on this Tax Credit?
The health care premium deduction is only available against a profit; if your business had a loss, you cannot claim this deduction. Premiums for your family may also be deducted, based on the same restrictions as above.
It is only available to self-employed individuals, not corporate owners (who are not self-employed).
The deduction is also not available if you were eligible for health insurance for another employer (including your spouse's employer), even if you didn't participate in this insurance coverage.
Of course, there are other restrictions on this long-term care deduction. Read about them in this section of IRS Publication 535: Business Deductions.
Disclaimer: The information in this article and on this site is not intended to be tax or legal advice. The information about this deduction is complicated; there are many limitations and restrictions. Please check with your tax professional before claiming this deduction, and get help with the worksheet.