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How to save money with your health insurance
Table of contents
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!
Who is eligible for the health insurance deduction?
You can obtain the self-employed health insurance deduction if:
- You are a freelancer, gig worker, sole proprietor, consultant, independent contractor, or business owner.
- You’ve earned a net profit for the year in your business
- You received your wages from an S corporation in which you were a shareholder of more than 2%.
How does health insurance deduction work?
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
What if you had access to an amployer plan for part of the year?
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.
Benefits
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:
- You have more than one source of income subject to self-employment tax. An example is driving for Uber and also being a pastor.
- You file Form 2555 to exclude foreign income from your tax return.
- You use the amounts you paid for qualified long-term care to figure your deduction.
Use the Self-Employed Health Insurance Deduction Worksheet from Publication 974 if:
- Your insurance plan was established under your business through the health insurance marketplace.
- You are eligible to claim the premium tax credit for your health coverage purchased through the marketplace.
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!
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