The Self-Employed Health Insurance Deduction allows self-employed individuals to deduct the premiums they pay for health, dental, and qualified long-term care insurance for themselves, their spouse, dependents, and children under age 27 (even if not a dependent). This deduction is taken on the individual’s personal income tax return (Form 1040) and directly reduces adjusted gross income (AGI), making it an "above-the-line" deduction.
It is only available for months when the taxpayer (or their business) had net income and was not eligible for an employer-sponsored health plan, including a spouse’s plan.
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Key Facts
- Eligibility: Only available to self-employed individuals with net business income who are not eligible for employer-provided coverage.
- Applies To: Sole proprietors, partners, members of LLCs, and more-than-2% S corporation shareholders.
- Deduction Limit: Cannot exceed the earned income from the business under which the insurance was established.
- Form Used: Reported on Schedule 1 (Form 1040), separate from itemized deductions.
- Covered Premiums: Includes medical, dental, and long-term care premiums for self, spouse, dependents, and children under 27.
1. Can I still claim the deduction if I’m covered under my spouse’s plan?
No, if you are eligible to participate in a subsidized employer health plan (such as your spouse’s), you cannot claim this deduction.
2. Does the insurance need to be in the business’s name?
Not necessarily. The IRS allows the deduction if the business pays the premiums or the self-employed person pays them and establishes the plan under the business.
3. Can I deduct premiums for months when my business had no income?
No, the deduction is limited to months when the business had positive net income.
4. How does this differ from itemizing medical deductions?
This is an above-the-line deduction, reducing AGI directly and not subject to the 7.5% AGI threshold required for itemized medical expenses.
5. Can S corporation owners claim this deduction?
Yes, but only if they own more than 2% of the corporation and the insurance premiums are included in their wages reported on Form W-2.
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