If you’re self-employed, you can make your health insurance deductible. Here’s how.
How the Self-Employed Health Insurance Deduction Works
The self-employed health insurance deduction is one of the easiest tax deductions to get. You just need to meet a few basic requirements.
- Have self-employment income.
- Not be eligible for health insurance through an employer or your spouse’s employer.
- Buy health insurance.
Self-employment income is almost any type of business income on your tax return. It can be from a gig economy app like Uber, or it could be from a registered LLC.
You do not need to have an LLC, DBA, business license, or any other form of registered business to claim the self-employed health insurance deduction. You just need business income.
There are also no minimum or maximum income requirements.
Generally, the only limit is that your self-employed health insurance deduction can’t exceed your net business profit. So if you have low business income or took a loss for the year, you can’t use the deduction to offset investment income, wage income, or other non-business income.
Not Eligible for Employer Insurance
To qualify to make your health insurance deductible when you’re self-employed, you can’t be eligible for health insurance through an employer. This includes:
- Your own employer whether it’s full-time or part-time
- Your own employer whether it’s your primary job or a second job
- Your own employer even if you make more from self-employment
- Your spouse’s employer
It also doesn’t matter if the employer coverage is bad or expensive. If you have some sort of employer coverage available, you generally won’t be able to take the self-employed health insurance deduction.
Buy Health Insurance
It doesn’t matter where you buy your health insurance. Unlike Affordable Care Act subsidies, you don’t have to buy your health insurance through the exchange to get the self-employed health insurance deduction.
You can buy through the exchange or directly from a private insurer. Medicare premiums are also usually deductible.
The type of insurance also usually doesn’t matter. You can generally choose a high-deductible plan, bronze plan, silver plan, gold plan, catastrophic plan, or any other type of health insurance plan.
Taking the Self-Employed Health Insurance Deduction
Taking the self-employed health insurance deduction is easy.
- Do not include your insurance premiums on your Schedule C or other business tax return.
- The self-employed health insurance deduction is a separate, above-the-line tax deduction.
- If you use tax filing software, it will ask you if you bought health insurance.
- Your tax filing software will ask you a few more questions and fill out the required forms.
If you buy coverage for your spouse and/or dependent children, you can generally include those premiums in your self-employed health insurance deduction. Again, use tax filing software, and it will do everything for you.
If you have subsidized health insurance, your self-employed health insurance deduction is equal to your actual cost.
For example, say you have a $400 monthly premium, a $250 subsidy, and pay $150 out of pocket. You can deduct $150 per month.
Your self-employed health insurance deduction may be adjusted when you reconcile your premium tax credit. It’s based on your end-of-year numbers rather than the cash you paid during the year.
- For example, if you calculate that your subsidy should have been $225 per month instead of $250, you can deduct $175 per month. That’s the $150 you originally paid plus the $25 extra monthly tax credit that you have to pay back.
- Similarly, if you calculate that your subsidy should have been $275 per month instead of $250 per month, you can only deduct $125 per month. You’ll get a refund of the extra $25 you paid each month through the Premium Tax Credit.
Coverage for your employees (other than your spouse or dependent children) is not part of the self-employed health insurance deduction. If you pay for your employees’ health insurance premiums, it’s a deductible business expense as part of employee compensation.
Other Medical Expenses
Other medical expenses are generally not deductible as a business expense. If you did have large medical expenses during the year, you may be able to claim them with your itemized deductions.