The Self-Employed Health Insurance Deduction

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The Self-Employed Health Insurance Deduction

By Cathy Petersdoctor

If you’re one of the many self-employed people who have to pay for health insurance for you and your family, you may be entitled to the self-employed health insurance deduction.    This deduction is particularly valuable because it is not an itemized deduction subject to the general limitations on medical expenses (currently 7.5% of adjusted gross income).  Instead, it is a reduction in adjusted gross income on page 1 of Form 1040.

Besides a sole proprietor operating a trade or business, a self-employed individual for purposes of the deduction can be a partner or S corporation employee who is a more-than-2% shareholder on whose behalf the partnership or S corporation pays the premium.  The partner or S corporation employee-shareholder may pay the premium directly and be reimbursed by the partnership or S corporation.  In either case, the amount must be properly reported and included in the partner’s or employee-shareholder’s gross income.

The types of insurance premiums that qualify for the deduction are medical insurance, dental insurance, qualified long-term care insurance, and premiums for all Medicare parts.  Premiums for the self-employed person, that person’s spouse and dependents, and adult children to age 27 even if they are no longer dependents can be deducted as part of the self-employed health insurance deduction.

The deduction is available only to the extent that you had self-employment income during the year.  Premiums that are subsidized by an employer of you or your spouse do not qualify.  Should your health insurance premiums exceed your business income, the excess may be claimed as a medical expense if you itemize deductions.

As health insurance premiums continue to rise, the tax savings from this deduction will reduce the net cost of your insurance coverage.  Don’t overlook this valuable deduction on your tax return.

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