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Self-Employed Health Insurance Deduction: An Overview

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Self-Employed people have different challenges to face than people who are working for a business. While being self-employed has its own perks and benefits, there are some challenges that self-employed people face. One of these challenges is to find a health insurance plan for themselves that is both affordable and comprehensive to cover their healthcare needs effectively. One-way self-employed individuals can effectively manage their expenses is to file for a health insurance deduction.

What is a Health Insurance Deduction for the Self-Employed?

With a self-employed health insurance deduction, qualified individuals can get a tax deduction on their premiums. In fact, in some cases, self-employed persons who pay for their own health insurance can become eligible for a tax deduction on 100% of the health insurance premiums they paid for themselves, their families, and dependents at the end of every fiscal year. However, there are certain rules, and you must meet certain criteria to become eligible for this tax deduction.

Your health insurance premiums are tax deductible if:

  • You are a self-employed worker.
  • You have qualifying insurance, which includes medical insurance, long-term care coverage, and Medicare Part A, B, C, and D premiums.

What Kind of Medical Expenses are Tax-Deductible?

Self-employed health insurance tax deduction includes policy premiums that you can claim. These premiums are determined by the Internal Revenue Service (IRS). You can claim a tax deduction on the following medical expenses:

  • Physician Visits

These expenses include fees paid to general practitioners, psychiatrists, dentists, surgeons, psychologists, and chiropractors. Depending on your policy, you can also claim a tax deduction for visiting alternative medical practitioners.

  • Dental Care

This includes medical expenditures used on dental procedures like cavity filling, tooth extraction, and dental surgeries.

  • Vision Care

This includes the medical cost of eye exams, contact lenses, prescriptions, and other eye-related conditions and medical equipment.

  • In-Patient Care

You can claim a tax deduction on the entire cost of your hospital stays or for the time you spent in a nursing care facility.

  • Rehabilitation Services

This includes the charges spent on in-patient and outpatient rehabilitation services and care.

  • Weight-Loss Programs

You can claim a tax deduction on the medical expenses spent on weight loss and other programs to improve overall health.

  • Transportation

Any dollars spent on transportation to receive medical services like taking a medical test, getting a prescription refill, or attending a therapy session are also tax-deductible.

  • Other Services

Many other expenses for medical services, such as hearing aids, wheelchairs, and orthotic devices, also qualify for self-employed health insurance deduction.

What are the Eligibility Criteria for the Self-Employed Health Insurance Deduction?

You can be eligible for the self-employed health insurance deduction if you work independently or run a small business. To be able to get the benefit of the self-employed health insurance deduction, you will need to meet the following criteria:

  • You Do Not Have Any Other Health Insurance Options

Self-employed health insurance deduction is only applicable to those who do not have any other health insurance policies available for them. You also must not have any employer-sponsored health insurance policies available for you.

  • You Have an Income

Whether you are working alone or running a small business, you must provide proof of income to become eligible for a self-employed health insurance deduction. You will not qualify for the deduction if your net income is less than what you spent on your medical bills.

In addition, your net income must be reported on Schedule C or F for your health insurance premiums to become tax deductible. Another way you can be eligible is if you are a partner, are earning a certain amount as a limited partner, or are a shareholder of more than 2% of stock on an S corporation with wages reported on Form W-2.

Furthermore, if you have more than one small business, you cannot combine their incomes to present as one. You will need to meet a specific income limit to meet the eligibility criteria for a self-employed health insurance deduction.

What Factors Can Make You Ineligible?

You can become ineligible for self-employed health insurance deduction in case of the following scenarios:

  • If you have access to an employer-sponsored health insurance plan. This employer can be your or your spouse’s employer offering health insurance.
  • If you have received employer-sponsored health insurance coverage for a few months, then you will become ineligible for a tax deduction for those particular months, as a self-employed health insurance deduction is calculated on a month-to-month basis.

What are the Limitations of the Self-Employed Health Insurance Deduction?

Age is the limiting factor when it comes to deductions on your long-term care insurance. Following are the deductions you can claim for your long-term care insurance this year based on your age:

Your Age This Year’s Deduction Limit
40 years and younger $450
41 to 50 years old $850
51 to 60 years old $1,690
61 to 70 years old $4,510
71 and above $5,640


What is the Application Process for the Self-Employed Health Insurance Deduction?

Once you have checked and confirmed your eligibility, you can take the following steps to claim a self-employed health insurance deduction:

  • Calculate Your Deduction

You can either calculate your deduction yourself, or you can seek a tax professional’s help with the process. In case you would like to determine the deduction amount yourself, you will need to use the self-employed health insurance deduction sheet that you can find in the instructions of Form 1040. If done correctly, you can get a deduction on 100% of your health insurance premiums.

  • Report the Deduction on Your Tax Return

To complete this step, you must complete Schedule 1, Line 16.

Furthermore, you might need to fill out extra forms to calculate your deduction if you have more than one self-employed line of work. You must keep a record of your health insurance expenses, especially the premiums, to help you file for a deduction at the end of each year.

In addition, if this process is too overwhelming for you or you are unable to find the necessary time for this purpose, you can always seek the help of a tax professional or IRS to make things easier.