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Why YOU Should Care
If you are self-employed and provide medical, dental, or long-term care insurance for yourself, your spouse, and/or your dependents, you may qualify to deduct the cost of the related premiums on your tax return. This deduction is reported on Line 29 of your personal income tax return (Form 1040) and could reduce your income subject to taxation.
Qualifying for the Deduction
As a self-employed individual operating as a sole proprietor or single-member LLC, you report income from your business on a Schedule C or Schedule C-EZ. This Schedule is filed annually with your tax return (Form 1040). In order to take the deduction for health insurance, your business must have a profit subject to self-employment tax. Your deduction cannot exceed the amount of profit from your business.
The deduction for self-employed health insurance does not reduce the amount of income subject to self-employment tax. The calculation of self-employment tax on Schedule SE begins with the net profit number from the Schedule C.
If you itemize deductions on a Schedule A, your medical and dental expenses on Line 1 should be reduced for the amount of self-employed health insurance deduction taken so that these premiums are not double-counted.
Eligible Plans
The deduction for self-employed health insurance covers the following:
- Medical insurance
- Dental insurance
- Long-term care insurance (subject to certain age-related adjustments)
Eligible plans can cover you, your spouse, and your dependents provided you meet the qualifications and no one has access to other coverage through an employer (see below). You can also include coverage for children who were under the age of 27 at the end of the year even if they were not your dependent.
“Established under your Business”
To qualify, the plan must be “established under your business”. For sole proprietors and single-member LLCs, the policy can be either in the name of the individual or the business.
Other Coverage
You are not eligible to take the deduction for any months during which you were eligible to be covered under an employer’s subsidized health insurance plan. This includes a plan offered through a spouse or dependent’s employer should you be eligible. This limitation applies regardless of whether you participate in the plan – if you were eligible, you do not qualify for the deduction for that month. This limitation is applied on a month-by-month basis, so if you were only eligible for an employer plan for part of the year, you may qualify to take the self-employed health insurance deduction for the part of the year when you had no access to other coverage.
