Save $ with the Self-Employed Health Insurance Deduction

March 11, 2024

If you are self-employed and pay for private health insurance, you may be eligible for the self-employed health insurance tax deduction. In the following guide, we cover everything you need to know about the self-employed insurance deduction, including what it is, who qualifies, and how to claim it. Keep reading for more information.

What is the self-employed health insurance deduction?

The self-employed health insurance deduction exists to benefit qualifying self-employed taxpayers by allowing them to deduct 100% of the premiums they pay for medical, dental, and eligible long-term care health insurance coverage for themselves, their spouse, and their dependents.

Since private health insurance is a significant financial burden for self-employed individuals, the tax deduction can provide much-needed relief on personal income taxes. Not all self-employed taxpayers qualify, however, so let’s take a look at who does.

Who qualifies for the self-employed health insurance deduction?

In order to qualify for the self-employed health insurance deduction, you must meet the following requirements:

  • No other health insurance coverage – You must not be eligible to receive employer-subsidized health insurance through either your employer or your spouse’s employer.
  • You must have earned business income – You must have generated positive earned income for the year to take the deduction, and you cannot deduct more than your business’s earned income.

If you are a partner or member of an LLC taxed as a partner, then you are considered eligible for the deduction if you meet the above requirements.

Likewise, if you are a shareholder of more than 2% in an S Corporation and health insurance premiums either paid or reimbursed by the company are included in your W-2 wages, then you are also considered eligible.

If you meet these requirements, then you may qualify to deduct 100% of the premiums for your medical, dental, and vision insurance. You may also qualify for limited deductions for long-term care insurance premiums according to the following guidelines for 2022-23:

Age 40 and younger - $450

41 to 50 - $850

51 to 60 - $1,690

61 to 70 - $4,510

Over 70 - $5,640

Let’s wrap up by reviewing how to take the self-employed health insurance deduction.

How to claim the self-employed health insurance deduction

Since the deduction is applicable to your personal income taxes, you’ll need to take it in the “Adjustments to Income” section on Schedule 1 of Form 1040. (It does not go on your Schedule C if you are a sole proprietor.) You can take the deduction whether you use the standard deduction or itemize your deductions. If you do itemize and don’t take 100% of your qualifying health insurance premiums on Schedule 1, then you can include the remaining expenses as medical expenses on Schedule A. Keep in mind the medical expenses are subject to the 7.5% limit of Adjusted Gross Income (AGI).

If you have questions about the self-employed health insurance deduction, including whether you qualify and how to take it, Honest Buck can help. Reach out to our team of accounting experts to discuss this deduction and others you may be eligible for. Contact us today!

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