Self Employed Health Insurance Deduction – Overview
In today’s modern world, health insurance is crucial for everyone. We all should get our health covered with a reliable health insurance policy to save ourselves from medical expenses during medical emergencies, accidents and sickness.
Medical treatments are highly expensive and health insurance is a must to save yourself from such unwanted expenses. The self-employed health insurance deduction system for self-employed people is explained in this article.
What Do You Mean by Self-employed Health Insurance
Health insurance for self-employed is the same health insurance plan that any individual gets from a reliable company. Instead of employer-sponsored health insurance, self-employed health insurance provides comprehensive medical coverage for those who own businesses.
Health insurance for self-employed provides medical coverage against accidents and sickness. It covers a range of treatments for various health conditions.
But are self-employed health insurance deductible? Let’s learn more about how self-employed people can deduct their health insurance to save taxes.
Self Employed Health Insurance Deduction
When a self-employed person opts for a health insurance policy, she or he needs to pay the premiums regularly to keep the policy in force. However, most self-employed people do not know about the deduction against their health insurance premiums.
Well, self-employed people can deduct their health insurance premiums to save taxes. It is for himself and his family, even at his expense. However, he has to meet the eligibility criteria for the deduction.
What Kind of Health Insurance Premiums Can a Self-Employed Deduct
A self-employed person can deduct the following insurance premiums during the financial year.
- Medical insurance (must meet specific requirements) (1)
- Medicare premiums (eligibility for Medicare premiums deduction depends on whether you or your spouse had access to an employer-subsidize health plan.)
- Qualified long-term care insurance (subjects the limits IRS publishes each year) (2)
- Dental Insurance
- Vision insurance
Upon proven eligibility, you can deduct the above-listed insurance premiums for yourself, your spouse, and dependents or children under the age of 27.
What is the Eligibility
If you or your spouse availed of health insurance sponsored by your employer, then you will not be able to get a deduction. Besides your spouse, if your children or family members get employer-sponsored health insurance, you will be disqualified from getting the deduction.
Moreover, there are some requirements you meet to become eligible for a health insurance deduction. Here’s the list of requirements for the deduction if you are self-employed.
- You are self-employed for the tax year and earned a net profit reported by you on Schedule C and Schedule F.
- You are a co-founder or partner of a business and earned net profit reports on Schedule K, Code A, and Box 14.
- An S Corporation pays your expenses during the financial year if you own 2% of the total shares.
- Net profit by self-employment reported on Schedule SE using the above-listed methods.
Moreover, the health insurance policy you availed of must be in your or your business’s name. You can pay your health insurance premiums from your account or use the company’s bank account.
What Can You Deduct?
As noted above, you can deduct the amount you spend on health insurance premiums for yourself, your spouse, family members, and children below the age of 27.
What Can’t You Deduct?
You can’t deduct some amounts even if you are self-employed and reported a net profit.
- The premiums paid during the employer-sponsored health insurance for yourself or spouse, or any of your dependents. You can only claim the premium amounts paid after you become a self-employed individual.
- Amounts that you used to claim Health Coverage Tax Credit.
- Amounts that you received through Health Coverage Tax Credit or monthly advances.
What is the Limit for Deduction for Self-employed
Self-employed individuals can deduct 100% of the qualifying premiums. The deduction is based on the net earned profits you reported.
What’s the Procedure for Deducting Self-employed Health Insurance Premiums
On schedule 1, form no. 1040, you must fill out line 17 to deduct your health insurance premiums as self-employed. The line reads self-employed deduction, and you must go through the detailed explanation before moving any further. You can enter the amount you want to deduct while filling outline 17. It is that simple!
The Bottom Line:
There are many misconceptions about health insurance premiums and deductions for self-employed individuals. We have tried to explain everything that you might want to know about deductions on health insurance premiums paid by self-employed individuals out of their pockets.
Ensure you read every detail carefully before filing your tax returns. If you are unfamiliar with it, seek professional help from an industry expert who can help you file your tax returns and save money on the health insurance premiums you have paid from your pockets.