Self Employed Health Insurance Deduction

The self employed health insurance deduction can be deducted as an adjustment to your income.

You must be either self employed with a net profit or a more than two percent shareholder from an S Corporation from which you receive wages to qualify for the self employment health insurance deduction.

These insurance plans deducted must be established under your business or self employment activity and cannot be more than the net profit of that business or activity.

The self employed health insurance deduction is for insurance premiums for plans that cover medical expenses, dental expenses, and long term care(with long term care the amount of the deduction is limited). It can be for yourself, your spouse and for your dependents.

NEW! The health insurance of your child up to 27 years can also be deducted with the self employed health insurance deduction.

2010 only! Usually this deduction affects only income tax but for tax year 2010 it also reduces the self employment tax.

What is not included in your self employment health insurance deduction?

  • If during any month you were eligible for an employer subsidized coverage (it does not necessarily have to be your employer it can be your spouse's, dependent's or child's employer) you cannot take the deduction for that month.
  • The amount you are getting from the Health Coverage Tax Credit cannot be deducted.

More ways you can deduct your insurance premiums:

  • If you cannot deduct the full amount of your health insurance because you earned less than your insurance premiums you can always try to deduct the balance with your medical expense itemized deductions.
  • If you employ your spouse you can provide employer subsidized health insurance for you spouse and family which includes you. This will give you a business expense deduction which reduces both your income tax and self employment tax. You can also take this deduction even if your business will result in a net loss due to this deduction. You can then apply this loss to reduce your total income on your tax return.
  • If you receive TAA benefits or are over 55 and receive pension payments from the Pension Benefit Guaranty Corporation (PBGC) you can get 65% of qualified health insurance premiums with the Health Coverage Tax Credit.

To get the maximum deduction possible look into the last two options before claiming self employment health insurance deduction.

More information:

Publication 535

Updated December 24, 2012

Go to Medical Expense Tax Deductions

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