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Is medical insurance deductible for the self-employed?

Daniel Walker
Licensed Insurance Agent for 15 Years

UPDATED: Mar 19, 2020

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The lowdown...
  • Self-employed persons can deduct the costs of health insurance.
  • Self-employed persons can deduct costs related to medical care including vision and dental.
  • The self-employed deduction applies to spouse or partner and dependents.
  • The self-employed deduction does not depend on an earnings threshold.

Self-employed persons have tax advantages under Obamacare that can make health coverage affordable and financially sound investment. The Self-Employed Health Insurance Tax Deduction authorizes deductions in addition to the standard deductions for medical expenses. The Internal Revenue Code describes a wide range of deductions for health-related, dental, and vision expenses by self-employed persons and their dependents.

Learn more about life insurance below and make sure you use our free insurance comparison tool above!

The Individual Mandate

AdobeStock_79754738-1600x1600Self-employed persons must get and keep qualified health insurance. Each insurance provider must report minimum essential coverage to the IRS. Each self-funded employer- sponsored plan must also report offers of coverage to IRS. The individual mandate applies to the self-employed unless they have or qualify for an exemption.

  • Guarantee issue for self-employed persons that can afford to pay premiums.
  • Pre-existing conditions do not bar acceptance or affect rates. Self-employed persons get community ratings and the same prices and terms as other applicants.
  • Every qualified plan has Minimum Essential Coverage to avoid the tax penalty.

Open Enrollment

Self-employed persons must get insurance during the open enrollment period or face the possibility of not having coverage until the following calendar year. The tax advantages of the self-employed deduction depend on getting and maintaining minimum essential coverage.

Once past the close of the annual open enrollment period, the self-employed can purchase qualified health insurance outside of the Marketplace. After the close of open enrollment, qualified policies purchased outside the Marketplace will not have federal subsidies and financial assistance.

Special Enrollment Periods

adobestock_96476544-1600x1600After the close of the Open Enrollment Period, the rule is that no one can buy qualified insurance through the Marketplace and exchanges. To get a new opportunity to buy insurance, applicants need a change of status that qualifies as a Life Event. The federal and state governments recognize the below-listed status changes among the widely-accepted qualifying life events.

  • Marriage
  • Divorce
  • Birth or adoption of a child
  • Loss of coverage at age 26
  • Loss of employer-sponsored coverage
  • Loss of employer-sponsored coverage as a dependent

Eligibility for the Self-Employed Tax Deduction

Self-employed taxpayers can use the self-employed tax deduction if one of the four below-listed standards applies to them.

Net Profit

The self-employed person had a net profit from self-employment. This amount is reportable on Schedule C, Schedule C-EZ, or Schedule F.

Partnership Earnings

The partnership reported the self-employed person’s partnership earnings on Schedule K-1, Partner’s Share of Income and Deductions.

Self-Employment Income

The self-employed person was able to use an optional method to compute self-employment net income on Schedule SE, Self-Employment Tax.

S-Corporation Shareholder

The self-employed person received wages as a shareholder in an S-Corporation that owns two percent or more of the outstanding stock. The wages must have been reported on Form W-2.

The Self-Employed Health Insurance Tax Deduction

AdobeStock_62445878-1600x1600The self-employed deductions have some specific limitations and qualifications for eligibility. The policy requires some specific formalities in payment, policyholder name, and reimbursement.

– The Insurance Policy

When the below-listed items are true, the insurance policy can be in the name of the self-employed person or a company name.

  • If the beneficiary is self employed,
  • And if, he or she files Schedule C,C-EZ, or F.

– Partnerships

A partnership policy can have either the self-employed person or partnership as the named party, and either the individual or partnership can pay the premiums. The named policyholder must pay the premiums and then get reimbursement from the partnership. The reimbursement counts as income, and the policyholder reports the premium payment on IRS Schedule K-1.

– S-Chapter Corporations

The corporation can issue the policy in the name of the self-employed shareholder. If the self-employed policyholder pays the premiums, then the S-chapter corporation must reimburse him or her. The Corporation must include the premium reimbursement as wages on the annual W-2 wages filing.

The Federal Marketplace and State Exchanges

Self-employed taxpayers can use the Obamacare Marketplace and state exchange to get qualified health insurance. They can also arrange subsidies and federal financial assistance. Self-employed persons can get the below-described benefits from the marketplace and state exchanges.

  • Advance tax credits will reduce the monthly amount paid out-of-pocket for health insurance premiums.
  • Costs sharing reduction assistance applies to qualified incomes at or below 250 percent of the federal poverty guideline.
  • Medicaid may help self-employed persons that do not meet the income requirements for Marketplace policies; states that expanded Medicaid raised the income limits to 138 percent of the federal poverty guideline.
  • CHIP can protect infants, children, and adolescents in need of medical, dental, and vision care.

Medical Expense Deductions

The self-employed may still use the standard medical expense deductions. If they can qualify under the threshold rule, then they can use medical expenses to reduce their tax obligations.

  • Schedule A (Form 1040) self-employed can deduct the part of your medical and dental expenses that exceed ten percent adjusted gross income.
  • Taxpayers born before January 2, 1952, can deduct medical and dental expenses that exceed seven and one-half percent of adjusted gross income.

Health Insurance Premiums

AdobeStock_62082716-1600x1600The self-employed can deduct health insurance premiums that they pay for themselves, a spouse, and dependents. Self-employed persons can deduct the full amount paid in insurance premiums for health, dental care, and vision care. The Self-Employed Health Insurance Tax Deduction reduces the adjusted gross income by the entire amount of the tax household’s premium expenses.

Self-employed Health Deductions

The Self-Employed Health Insurance Tax Deduction is a tax provision that favors the self-employed, and the provisions have tax incentives to get and keep health insurance. The self-employed can deduct a substantial amount of health expenses without regard to the amount of profits or earnings thresholds . Comparison shopping is a powerful tool for finding high-value health insurance coverage.

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