What is tax deduction for self-employed health insurance?

What is the self-employed health insurance deduction?

The self-employed health insurance deduction allows qualifying business owners to write off health, dental, and long-term care insurance premiums paid out of pocket. It applies to sole proprietors, partners, and S-corporation shareholders who own more than 2% of the company and are not eligible for coverage under another employer plan.

How to qualify and categorize the deduction

• You must have net business income from self-employment for the year (the deduction cannot exceed this amount.)
• You or your spouse cannot be eligible for a subsidized employer health plan.
• Deduct premiums for yourself, your spouse, dependents, and children under age 27 (even if they’re not your tax dependents).
• Record health insurance premiums as an adjustment to income on Schedule 1 (Form 1040), not as a business expense on Schedule C.
• For accounting purposes, track these premiums in a “Health Insurance Premiums” or “Owner Benefits” account separate from general operating expenses.

Examples of eligible health insurance premiums

• Medical insurance for the self-employed individual and family.
• Dental insurance premiums.
• Vision insurance premiums.
• Qualified long-term care insurance (up to annual IRS limits based on age).
• COBRA premiums if paid after leaving a prior employer.

Tax implications for self-employed health insurance

• The deduction is taken “above the line”, reducing AGI and taxable income directly.
• Premiums deducted here cannot also be claimed as itemized medical deductions.
• The deduction is limited to the amount of your self-employment net income; excess premiums can’t create or increase a loss.
• If you have multiple businesses, the deduction can be applied only against the income from the business that provides the coverage.
• Keep copies of all premium invoices, policy documents, and proof of payment for your tax records.