It’s almost time to present tax declarations, and something not many people are familiar with is the health insurance 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. If you want to know more about this, keep reading!
The self-employed health insurance deduction is special, because it is an above-the-line tax deduction. It allows you to potentially deduct the full cost of your health insurance premiums.
The insurance policy must be established in your business name. In case of being a sole proprietor, it can be in your personal name. The reimbursement must be recorded as taxable income if you pay the premiums yourself
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.
If your business has employees and you pay health insurance premiums for them, these amounts are deducted on the applicable tax form and line for employee benefit program expenses.
For example, if your business is a sole proprietorship, you deduct premiums paid to provide health coverage to employees on Schedule C.
The self-employed health insurance deduction lowers your adjusted gross income (AGI), which determines how much of your income will be taxed on your Form 1040. As your taxable income lowers, you save money on taxes.
Use the Self-Employed Health Insurance Deduction Worksheet from Publication 535 if:
Use the Self-Employed Health Insurance Deduction Worksheet from Publication 974 if:
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.
Now you know! Were you familiar with this process? Tell us in the comments!