Deducting Self-Employed Health Insurance Premiums

Posted by Andrew Friesner

August 28, 2010

If you have self-employment income, then you can take a deduction for health insurance expenses.

Before claiming this tax deduction, you must calculate your allowable health insurance deduction. Take your self-employment income, and subtract the 50% deduction for self-employment taxes, and subtract any retirement contributions you make to SEP-IRA, SIMPLE-IRA, or Keogh plan. The remainder is your allowable deduction for health insurance expenses.

If your self-employment income is from a Schedule C business, and you report a net loss on Form 1040 Line 12, then you are not eligible to deduct your health insurance costs.

You can deduct the full cost of health insurance you purchase for yourself, your spouse, and/or your dependents. However, you cannot deduct any insurance costs for any months you were eligible to participate in a group health insurance plan through your or your spouse’s employer. For example, if you paid for 12 months of health insurance coverage for yourself and your family, but you became eligible to participate in your spouse’s group health insurance in December, then you can deduct only 11 months worth of insurance premiums.

Where to Claim the Deduction

You claim the health insurance deduction as an “above the line” tax deduction on Form 1040, Line 29. You will need to use the worksheet provided in the Instructions for Form 1040.

Any health insurance premiums that you cannot deduct directly on Form 1040, you may be able to deduct as a medical expense on Schedule A.

From the IRS

“You may be able to deduct the amount you paid for health insurance for yourself, your spouse, and your dependents if any of the following applies.

You were self-employed and had a net profit for the year.
You used one of the optional methods to figure your net earnings from self-employment on Schedule SE.
You received wages in 2005 from an S corporation in which you were a more-than-2% shareholder. Health insurance benefits paid for you may be shown in Form W-2, box 14.”

Source: Instructions for Form 1040, Self-Employed Health Insurance Deduction.

For more information regarding small business, individual or family health insurance programs, please feel free to contact a licensed independent health insurance specialist of Chaser Insurance Group at (513)217-9491 or (877)775-4321. You can also reach an agent by email at AF@HealthInsuranceChaser.com.

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