One of the main perks of being traditionally employed is receiving benefits like employer-sponsored health insurance. Leaving a 9-to-5 to strike out on your own means ditching those benefits and having to purchase your own health coverage. Show
However, health care plans have become much more affordable for the self-employed. Learn how you may be able to deduct your health insurance premiums and reduce your out-of-pocket health care costs—all while running your own business. Key Takeaways
Are Self-Employed Health Insurance Premiums Deductible?Under certain circumstances, self-employed individuals can deduct the amount they’ve spent on health insurance coverage for themselves and their families during a tax year—even though this is a personal expense, not a company cost. Eligibility requirements apply to this deduction.
NoteYour health insurance plan may cover your children until they reach age 27, including biological children, adopted children, stepchildren, and foster children. How the Self-Employed Health Insurance Deduction WorksThe self-employment health insurance deduction enables qualifying self-employed individuals to deduct the total amount that they’ve spent on health care premiums during a tax year from their net income. However, you can only deduct up to the amount that your business earned that year. NoteIf your health care premium expenses exceed your net income, you can include the remaining expenses with other medical expenses as itemized deductions. Who Is Eligible?To be eligible for a self-employed health insurance deduction, you can’t have been eligible to participate in a health plan subsidized by your employer or the employer of your spouse, child, or dependent—whether or not you actually participated in that plan. This aspect of eligibility applies monthly, so if your spouse started a new job in June, and you qualified to join their employer-sponsored health plan, you could only claim the self-employed health insurance deduction for January through May. Additionally, you must meet one of the following requirements:
Whether you are self-employed, a partner, or a shareholder in an S corporation, your health insurance policy can be in your name or the name of the business. You can either pay the premiums yourself or have the company pay and report them. NoteIf you are a partner or an S corp shareholder and pay your own premiums, the business must reimburse you and report the premium amounts as part of your gross income. If they don’t, the insurance plan won’t technically be established under your business so the premiums won’t be deductible. What Can You Deduct?You can deduct the total amount you spent on premiums for medical, dental, and qualified long-term care insurance for you, your spouse, and your dependents. However, there are some exceptions. You can’t deduct:
NoteThe self-employed health insurance deduction only includes qualifying premium payments. You can’t deduct other medical expenses like deductibles and coinsurance. How Much Can You Deduct?You can deduct 100% of your qualifying health care premiums up to the amount your business has earned in net income for the year. ACA Tax Credits Mean More Savings for the Self-EmployedThe Affordable Care Act introduced premium tax credits (PTCs). These refundable credits help qualifying Americans pay their premiums for health insurance coverage purchased through the Marketplace. To qualify for a tax credit, you can't:
To get a PTC, enroll in health insurance coverage through the Marketplace and request financial assistance. The PTC amount you qualify for will be estimated based on your family size, household income, and eligibility for non-Marketplace coverage. Your estimated credit, if you qualify for one, will be paid in advance directly to your insurance company on your behalf. This reduces your out-of-pocket monthly expenses. How To Deduct Self-Employed Health Insurance ExpensesTo deduct your health care expenses as a self-employed individual, you’ll need to fill out line 17 on Schedule 1 (Form 1040). It reads, “Self-employed health insurance deduction,” and has a place to enter the amount. What About Medical Expenses?Medical expenses can be deducted if you itemize your deductions on Schedule A (Form 1040). You can deduct medical expenses that add up to more than 7.5% of your adjusted gross income. The expenses can include money you spent to diagnose, cure, mitigate, treat, or prevent disease, as well as payments to treat any structure or function of the body. You can also include payments made for insurance premiums that exceed the amount of net income you earned in a year. Frequently Asked Questions (FAQs)How do you get health insurance when you’re self-employed?Self-employed individuals, who run businesses without employees, can buy health insurance through the individual Health Insurance Marketplace. When you fill out an application, you’ll learn if you qualify for premium tax credits and other savings. How much does health insurance cost if you’re self-employed?The cost of your health insurance depends on a variety of factors, including the premium tax credits you qualify for and the plan you want. Within the Marketplace, you’ll be able to browse different categories of plans with varying costs for premiums, deductibles, copays, and coinsurance. You can apply online to learn more about the potential costs for your specific situation. Why is my self-employed health insurance deduction limited?The self-employed health insurance deduction is limited by the amount of net profit from your business. However, you can claim leftover premium expenses if you itemize your deductions. How much can you deduct for health insurance premiums selfSelf-employed individuals may be eligible to deduct up to 100% of their health insurance premiums on their tax return. You can claim the self-employed health insurance deduction even if you do not itemize deductions.
What qualifies as selfTo qualify for the deduction, you must meet two requirements: You have no other health insurance coverage. You may not take the self-employed health insurance deduction if you're eligible to participate in a health insurance plan maintained by your employer or your spouse's employer. You have business income.
Can I deduct my health insurance premiums through my business?Health insurance premiums are deductible as an ordinary expense for self-employed individuals. Whether you purchase the policy in your name or have your business obtain it, you can deduct health insurance premiums paid for yourself, your spouse, a dependent child or a nondependent child under age 27.
Where is selfThe self-employed health insurance deduction is an adjustment to income, also known as an “above-the-line deduction" because you don't need to itemize to claim it. Instead, you claim the deduction in Part II of Schedule 1, Additional Income and Adjustments to Income.
|