Deducting Health Insurance Premiums if You're Self-Employed

Self-employed individuals who buy health insurance for themselves and their eligible family members may be able to deduct 100% of their premium payments.

Who can qualify? Sole proprietors, general partners, limited partners receiving guaranteed payments, and greater-than-2% S corporation shareholders receiving wages from the corporation can qualify for the deduction.

Which expenses are deductible? The deduction is available for premiums paid for medical, dental, and qualified long-term care insurance for self-employed individuals and their spouses, dependents, and children who haven't reached age 27 by year-end (even if the children are not dependents).

The health insurance plan must be established under the self-employed business. However, the insurance may be purchased in either the name of the business or in the self-employed individual's name. (Partners and S corporation shareholders must be reimbursed for premium payments they make individually and include those amounts in their income.)

Where is the deduction claimed? The deduction is claimed on Form 1040 as an "above-the-line" deduction that reduces adjusted gross income. This tax treatment compares favorably to the itemized deduction for medical expenses, which is subject to certain income "floors" that limit the deduction.

What restrictions apply? The deduction cannot be more than the self-employed individual's earned income from the trade or business with respect to which the plan was established. Additionally, the deduction is not available for medical insurance payments made for any month in which the self-employed individual is eligible to participate in an employer-subsidized health plan.

For more information regarding health insurance concerns and restrictions, please contact us.