Haris Ashley
If you're self-employed, you may be able to deduct the cost of your medical insurance premiums from your taxable income. This is a benefit that can reduce your adjusted gross income (AGI) and lower the odds of being affected by unfavourable phase-out rules that cut back or eliminate tax breaks. To take advantage of this deduction, you must meet certain Internal Revenue Service (IRS) criteria and file the appropriate forms. You can claim the self-employed health insurance deduction as an adjustment on your tax return, and you may be able to deduct up to 100% of the premiums you paid during the year. It's important to note that this deduction is applied on a month-to-month basis, and you won't be eligible if you have access to an employer-sponsored subsidised health insurance plan.
| Characteristics | Values |
|---|---|
| Who can claim? | Self-employed individuals, including independent contractors, business partners, LLC members, and S corporation shareholders |
| Type of insurance | Medical, dental, vision, and qualifying long-term care insurance |
| Eligibility criteria | Must not have access to an employer-subsidized health plan; must have a net profit reported on Schedule C or F; must meet IRS criteria |
| Deduction amount | Up to 100% of health insurance premiums paid during the year |
| Where to claim | Part II of Schedule 1 (Form 1040), line 17; Form 7206; Schedule A (Form 1040) |
| Other considerations | Premium tax credits and savings are available on Marketplace plans for eligible individuals; special rules apply for partners and LLC members |
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What You'll Learn
Self-employed health insurance deduction
If you are self-employed, you may be eligible to deduct the premiums that you pay for medical, dental, and qualifying long-term care insurance coverage for yourself, your spouse, and your dependents. This is known as the self-employed health insurance deduction. This deduction is applied on a month-to-month basis, so you would only be disqualified from claiming the deduction for the months that you had employer plan coverage.
To take the deduction, you must meet certain Internal Revenue Service (IRS) criteria. You can deduct up to 100% of the health insurance premiums you paid during the year on your income tax return. This deduction is entered on Part II of Schedule 1 as an adjustment to income and transferred to page 1 of Form 1040. This means you benefit whether or not you itemize your deductions. Unlike an itemized deduction, this deduction treatment is beneficial because it lowers your adjusted gross income (AGI). Having a lower AGI can reduce the odds that you’ll be affected by unfavourable phase-out rules that can cut back or eliminate various tax breaks.
You can claim this deduction regardless of whether you choose to claim the standard deduction or itemize your deductions. You can only claim the health insurance premiums write-off for months when neither you nor your spouse were eligible to participate in an employer-subsidized health plan. If you didn't include Medicare premiums (or other insurance premiums) on a prior year's return, you can file an amended return to claim or increase your deduction for self-employed health insurance for that year.
If your self-employment activity is a sole proprietorship that generated a tax loss for the year, you are not allowed to claim the deduction because the business didn't generate any positive earned income. However, if you are a business partner or LLC member who is treated as a partner for tax purposes, you can deduct the health insurance premiums you pay directly. If the partnership or LLC pays the premiums, you can still claim the deduction for premiums paid for your coverage by following special rules.
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Qualifying insurance plans
If you are self-employed, you may be eligible to deduct premiums that you pay for medical, dental, and qualifying long-term care insurance coverage for yourself, your spouse, and your dependents. Eligible health insurance includes medical insurance, qualifying long-term care coverage, and all Medicare premiums (Parts A, B, C, and D).
If you are self-employed with no employees, you are not considered an employer. You can use the Health Insurance Marketplace to find health coverage for yourself. You can choose from several categories of coverage, from plans with low premiums that mainly protect you in worst-case scenarios to plans where you pay more each month but less out-of-pocket when you receive healthcare services.
If you qualify for a premium tax credit and/or reduction of your out-of-pocket costs and your expected household income changes during the year, you should return to the Marketplace and update your estimated income as soon as possible. At the end of the year, if you made more than what you reported, you may have to pay back some or all of the premium tax credits. If you made less, you could get additional premium tax credits when you file your taxes.
If you didn't include Medicare premiums (or other insurance premiums) on a prior year's return, you can file an amended return to claim or increase your deduction for self-employed health insurance for that year. Your health insurance premiums are tax-deductible if you have a net profit reported on Schedule C or F. You are also eligible if you're a general partner, a limited partner receiving guaranteed payments, or a shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2.
If you have access to participate in an employer-sponsored subsidized health insurance plan, you won't be eligible for this tax deduction. This deduction is applied on a month-to-month basis, so you would only be disqualified from claiming the deduction for the part of the year that you had employer plan coverage.
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Eligibility
If you are self-employed, you may be eligible to deduct premiums that you pay for medical, dental, and qualifying long-term care insurance coverage for yourself, your spouse, and your dependents. This is a valuable tax break that can help you pay at least a portion of the premium cost.
To be eligible for the self-employed health insurance deduction, you must meet certain Internal Revenue Service (IRS) criteria. For example, you can only claim the health insurance premiums write-off for months when neither you nor your spouse were eligible to participate in an employer-subsidized health plan. If your self-employment activity is a sole proprietorship that generated a tax loss for the year, you are also not allowed to claim the deduction because the business did not generate any positive earned income.
If you are a business partner or LLC member who is treated as a partner for tax purposes, you can deduct the health insurance premiums you pay directly. If the partnership or LLC pays the premiums, you can still claim the deduction for premiums paid for your coverage by following special rules. Partners and LLC members who are treated as partners for tax purposes are considered self-employed. If you fit into this category and directly pay your own health insurance premiums, you can claim the page 1 deduction.
If you are self-employed with no employees, you are not considered an employer. You can use the Health Insurance Marketplace to find health coverage for yourself. You can buy health coverage through the individual Health Insurance Marketplace. If you run a business that produces income and has no employees, you are considered self-employed.
To qualify for SHOP, you generally must have between 1-50 employees with at least one employee other than the owners or their spouses. The Individual Marketplace offers flexible, quality coverage for people who are self-employed. When you fill out a Marketplace application, you will find out if you qualify for premium tax credits and other savings on a health plan. This will be based on your income and household size.
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Claiming the deduction
If you are self-employed, you may be eligible to deduct premiums that you pay for medical, dental, and qualifying long-term care insurance coverage for yourself, your spouse, and your dependents. This is called the self-employed health insurance deduction. This deduction is applied on a month-to-month basis, so you would only be disqualified from claiming the deduction for the part of the year that you had employer plan coverage.
To claim the deduction, you must meet certain Internal Revenue Service (IRS) criteria. You can deduct the health insurance premiums you pay directly. If your partnership or LLC pays the premiums, you can still claim the deduction for premiums paid for your coverage by following special rules.
You can claim the self-employed health insurance deduction as an adjustment on Part II of Schedule 1 (Form 1040), line 17. This deduction is then transferred to page 1 of Form 1040. You can only claim the health insurance premiums write-off for months when neither you nor your spouse were eligible to participate in an employer-subsidized health plan.
If you didn't include Medicare premiums (or other insurance premiums) on a prior year's return, you can file an amended return to claim or increase your deduction for self-employed health insurance for that year. Your health insurance premiums are tax-deductible if you have a net profit reported on Schedule C or F. You can include a health insurance premium paid for yourself, your spouse, dependents, and any non-dependent child under the age of 27 at the end of the year.
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Special cases
If you are self-employed, you may be eligible to deduct premiums that you pay for medical, dental, and qualifying long-term care insurance coverage for yourself, your spouse, and your dependents. However, there are some special cases to consider:
- If your self-employment activity generated a tax loss for the year, you cannot claim the deduction as there was no positive earned income.
- If you are a business partner or LLC member treated as a partner for tax purposes, you can deduct the health insurance premiums you pay directly. If the partnership or LLC pays the premiums, special tax reporting rules apply, but you can still claim the deduction for premiums paid for your coverage.
- If you have an S-corp, be aware of a 2015 notice regarding reimbursement for health premiums.
- If you have more than one source of income subject to self-employment tax, you must file Form 2555.
- If you have more than one health plan during the year, and each plan is established under a different business, you must use a separate Form 7206 to figure each plan's net earnings limit.
- If you didn't include Medicare premiums on a prior year's return, you can file an amended return to claim or increase your deduction for self-employed health insurance for that year.
- If you have access to an employer-sponsored subsidized health insurance plan, you won't be eligible for the tax deduction.
- If you are married, you must usually file a joint federal tax return to be eligible for premium tax credits and savings on Marketplace plans.
- If you currently have COBRA continuation coverage, your options are different during the annual health insurance Open Enrollment period and outside of it.
- If you are dealing with a significant illness or injury, you may be able to deduct some of your medical expenses, but only the portion that exceeds 7.5% of your income.
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Frequently asked questions
You may be able to deduct the total amount paid for health insurance coverage for yourself, your spouse, and your dependents. You can claim this deduction on Schedule 1 (Form 1040), line 17.
The self-employed health insurance deduction allows independent contractors and other self-employed taxpayers to deduct the health insurance premiums they pay to help offset the cost of medical expenses.
This deduction lowers your adjusted gross income (AGI). Having a lower AGI can reduce the odds that you’ll be affected by unfavourable phase-out rules that can cut back or eliminate various tax breaks.
You may be eligible to deduct premiums that you pay for medical, dental, and qualifying long-term care insurance coverage for yourself, your spouse, and your dependents. You can only claim this deduction for months when neither you nor your spouse were eligible to participate in an employer-subsidized health plan.
You can buy health coverage through the individual Health Insurance Marketplace®. When you fill out a Marketplace application, you’ll find out if you qualify for premium tax credits and other savings on a health plan.
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