Self-Employed Health Insurance Deduction: Make It Count

The primary ways of doing this are using the Self-Employed Health Insurance deduction, taking the premium tax credit, and deducting approved medical expenses. If you’re self-employed and pay supplemental Medicare premiums, such as for Part B coverage, you can deduct these premiums as well. The policy can be in the name of your business if you don’t operate under your own name. The key rule of applying both the self-employed health insurance deduction and the premium tax credit is that you can’t double dip. That is, the combined amount of deductions and credits cannot be greater than the total of your eligible premiums.

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These payments would be reported on the appropriate year-end earning statement, such as Form K-1. Your self-employment taxes are based on the totality of your business income less other expenses—the income you calculate on Schedule C—but not less your insurance premiums. You must calculate your income after business expenses on Schedule C, then enter this income on your Form 1040. The self-employed health expense deduction is then subtracted from this amount further down on your Form 1040. We should also note that the deduction applies on a month-to-month basis.

The ACA makes similar subsidies available for many self-employed people, and the American Rescue Plan and Inflation Reduction act have made those subsidies larger and more widely available. If you’re self-employed and need to purchase your own health coverage, you can do so during the annual open enrollment period. In most states, this window runs from November 1 to January 15, although some states have different deadlines. The open enrollment period applies both on-exchange and off-exchange, but premium tax credits are only available on-exchange. There are also special enrollment periods linked to various qualifying life events, which allow a person to enroll outside of the annual open enrollment window. Let’s say you are working as a real estate agent full-time in January and purchase your own health insurance.

Instances when your individual health insurance plan may not be tax deductible

Rely on our team of pros to get your taxes right and keep your business on track. So even if you had an additional $2,000 in net income from another activity, you’d still be limited to the $5,000 from the activity the insurance was assigned to. Unfortunately, that https://turbo-tax.org/ includes having the most expensive healthcare system in the world. You may not deduct funeral or burial expenses, nonprescription medicines, toothpaste, toiletries, cosmetics, a trip or program for the general improvement of your health, or most cosmetic surgery.

Unlike many tax deductions, you can get the self-employed health insurance deduction regardless of whether you take a standard or itemized deduction. It is known as an “above-the-line deduction” and reduces your adjusted gross income (AGI). Self-employment and entrepreneurship are a dream for many people, and Obamacare has made that option easier to pursue, thanks to guaranteed-issue coverage, premium subsidies, and Medicaid expansion. For entrepreneurs who don’t have access to a spouse’s group health insurance plan, being self-employed usually means purchasing a policy in the individual health insurance market.

Self-employed health insurance deduction

One of the many perks of being self-employed is that you can deduct what you spend on health insurance premiums ”above the line” on the first page of your tax return. This means you can still take the standard deduction in addition to the health insurance deduction as opposed to itemizing all deductions and foregoing the standard amount. Yes, there are earned income limitations set in place for the self-employed health insurance deduction. The rule is that your deduction can’t exceed your business’ earned income minus the deductions for one-half of self-employment tax and qualified retirement plan contributions. The use of this article should only be for informational purposes and does not constitute tax advice.

• If your business’ net profit was $1000, you would only be able to claim a $1000 deduction—even if your premium costs exceeded $1000 for the year.
• The self-employed health insurance deduction is ”above the line”, meaning it reduces your adjusted gross income and you can claim the deduction whether or not you itemize.
• Here are some other things you should know about health insurance and your taxes.
• No matter what, learning about the self-employed health insurance deduction can be helpful for those who will need to cover the cost of health insurance on their own.
• Always be sure to evaluate all of your options, so that you can be sure you’re getting the most out of your tax return.
• For 2022, the average subsidy amount grew to $505/month, and 89% of enrollees were receiving a subsidy.

You can even file taxes directly through FlyFin with the help of the CPAs or you can also export data in IRS format if you want to file elsewhere. So if you could participate in your spouse’s employer’s plan for the first five months of the year, but weren’t eligible for the remaining seven months, you could deduct seven months of self-employed premiums. This deduction isn’t strictly limited to health insurance, and it’s not available to all self-employed people.

The Self-Employment Health Insurance Deduction

Our Block Advisors small business services are available at participating Block Advisors and H&R Block offices nationwide. The deduction cannot exceed the earned income you collect from your business. When it comes to getting a break on your medical expenses, there are a lot of tax opportunities available https://turbo-tax.org/how-to-claim-the-self-employed-health-insurance/ to you. Donating to a charity, non-profit or other organization can save you on your taxes, because charitable donations are tax-deductible. Understanding the Child Tax Credit to help offset the costs of raising a child. Parents are eligible to receive a Child Tax Credit for each qualifying child.

• FlyFin is an A.I.-powered tax service designed for freelancers to make taxes effortless.
• Unfortunately, not all self-employed people can use their health insurance to lower their taxes.
• As you probably already know, independent workers generally don’t have access to employer-sponsored health insurance (and the lower group rates that come with them).
• One popular option is an HSA-qualified high deductible health plan (HDHP).
• Yes, there are earned income limitations set in place for the self-employed health insurance deduction.
• You are also eligible if you’re a general partner, a limited partner receiving guaranteed payments, or a shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2.

In a country where a minor operation can saddle you with medical debt for years, and health insurance prices are through the roof, many freelancers and independent contractors have a “knock on wood” approach to their health. Have questions about self-employment taxes and other small business tax issues? Rely on our team of small business certified tax pros to get your taxes right and keep your business on track. All features, services, support, prices, offers, terms and conditions are subject to change without notice.

Tax codes and deductions can change each year so it’s important to reach out to a certified tax professional. That way you can find out if you qualify for the self-employed health insurance deduction. As is the case with the self-employed health insurance deduction, HSA contributions are deducted “above the line” on Form 1040, which means the deduction is available to filers regardless of whether they itemize deductions.

• If you qualify, you are entitled to a special personal deduction for the self-employed (rather than a business deduction).
• We’ll go over those rules in this post and explain how you can deduct them on your return.
• Write-offs are available whether or not you itemize, if you meet the requirements.
• Do you need more help with self-employed health insurance and how it affects your taxes?
• Still, it’s one more good reason to keep track of your medical bills and health insurance premiums – just in case.
• Claiming the self-employed health insurance deduction can be complicated—especially if you’re also eligible to claim the premium tax credit because you purchased coverage through the Health Insurance Marketplace.

For 2023, the HSA contribution limits are $3,850 for people who have individual coverage under an HDHP, and $7,750 for those who have family coverage (two or more people) under an HDHP. And contributions can be made up until the tax-filing deadline, so the deadline for making 2022 HSA contributions is April 18, 2023 (the deadline is normally April 15, but holidays and weekends sometimes result in a slightly later deadline). Congress implemented a 25% deduction for self-employed health insurance premiums in 1987 and made it permanent in 1994. The self-employed received even better news in 2003 when premiums became 100% deductible. For example, if an individual’s deductible is $1,500, they will be required to pay $1,500 for medical services they require before their current insurance plan begins providing coverage and financial assistance.

If you are self-employed, you are entitled to deduct 100% of the health insurance premiums you pay for yourself and your qualifying dependents. The self-employed health insurance deduction is ”above the line”, meaning it reduces your adjusted gross income and you can claim the deduction whether or not you itemize. Claiming the self-employed health insurance deduction can be complicated—especially if you’re also eligible to claim the premium tax credit because you purchased coverage through the Health Insurance Marketplace.

Do you need more help with self-employed health insurance and how it affects your taxes? To receive a subsidy, your income must be between 100 percent (or 138 percent if your state expanded Medicaid) and 400 percent of the federal poverty level ($13,590 to $54,360 for an individual for 2023). 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. Small business taxes are an overwhelming topic without the right resources.