How To Claim the Deduction if You’re Self-Employed
If you have self-employment income, you can take the deduction for health insurance expenses incurred for yourself, your spouse, and your dependents. Self-employment income is reported on Schedule F if you’re a farmer or Schedule C for other sole proprietors. General partners in partnerships and actively participating members in LLCs that are treated as partnerships can claim the deduction if they have any self-employed income, as can employees of S-corporations who own 2 percent or more of the corporation’s stock. Your self-employment taxes are based on the totality of your business income less other expenses—the income you calculate on Schedule C—but not less your insurance premiums. That would be something of a double tax break. You must calculate your income after business expenses on Schedule C, then enter this income on your Form 1040. The self-employed health expense deduction is then subtracted from this amount further down on your Form 1040.
What Policies Are Eligible?
The entire cost of premiums paid for medical insurance, dental insurance, and long-term care insurance are deductible for policies that cover you, your spouse, your dependents, or adult children who have not reached the age 26 as of the last day of the tax year. If you’re self-employed and pay supplemental Medicare premiums, such as for Part B coverage, you can deduct these premiums as well. The policy can be in the name of your business if you don’t operate under your own name.
Limitations To Claiming the Self-Employment Health Insurance Deduction
You’re Eligible for Insurance Through an Employer
You can’t deduct the costs of health insurance if you or your spouse were eligible to participate in a subsidized group health plan through an employer. This might be the case if you work a regular job and have your own business on the side, or if your spouse becomes employed and is eligible for family coverage under a group plan. If she takes the job and qualifies for the plan in December, for example, you might have paid for 12 months of health insurance coverage for yourself and your family but you can deduct only 11 months’ worth of premiums from January through November because you were eligible for another plan in the last month of the year.
Your Self-Employment Income Is Less than the Health Insurance Deduction
Your self-employment income is calculated on Schedule C or F and it must be equal to or exceed the amount of your health insurance deduction. For example, if your business earned $12,000 but premiums cost you $15,000, you can’t claim the entire $15,000. You can only take the $12,000. And if your business reports a loss, you’re not eligible for the deduction at all.
Some Other Tips for Claiming the Deduction
Enter your self-employment health insurance deduction on line 29 of Form 1040. A worksheet is provided in the Instructions for Form 1040 to calculate the deduction, and a more detailed worksheet can be found in Publication 535. Use Worksheet P found in Publication 974, Premium Tax Credit if you obtained insurance through a health insurance exchange and received a premium assistance tax credit.
You don’t have access to a health insurance plan through your employer or your spouse’s employerYou have business income; if your self-employment income is less than the amount you deduct for business expenses, you aren’t eligible for the self-employed health insurance deduction
