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Breaking Down The Self-Employed Health Insurance Deduction

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You’re self-employed, which means getting your own health insurance.

No more being able to take advantage of an employer’s plan.

Well, unless your spouse has access to a good one.

Or are young enough to be on your parents’ plan.

But, in general, you’re on your own, and it sucks.

Not only are premiums rising each year, but so are deductibles.

Add to that the lack of help and affordable options the marketplaces provide, and the whole thing makes you want to scream.

Enter the self-employed health insurance deduction.

With this little gem, you may no longer have to itemize in order to deduct your health insurance premiums.

You may no longer have to meet certain minimums before your medical expenses qualify for deducting.

That’s a huge benefit.

It’s not, however, without its drawbacks and confusing rules…

Doctor wearing white coat with blue tie and stethoscope sitting with female patient

The Self-Employed Health Insurance Deduction Requires Business Profits

There isn’t anything wrong with reporting a loss on your Schedule C business.

At least not when it comes to your income tax return.

It happens very often, and realistically, it’s part of doing business.

There are certain times when you must show a profit, however.

One of those times is to qualify to take the self-employed health insurance deduction.

If you are reporting a net loss on Schedule C, you cannot deduct any part of the health insurance premiums you paid.

That’s $0.

No deduction can be taken at all without reporting profits.

At least not for the self-employed health insurance deduction, but you can still claim those health insurance premiums if you qualify to itemize and meet the Medical & Dental Expenses minimums on Schedule A of your 1040.

And, it’s not one of those grey areas, where you can choose to be as cautious or aggressive as you feel comfortable.

This is taken verbatim from IRS Publication 535, Business Expenses (even keeping the exact punctuation!)

You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming.

One thing to be aware of is that the health insurance premiums are not a business expense, and therefore don’t get reported anywhere on the Schedule C.

Even if you pay the premiums from the business bank account, it has no impact on the business’s taxable income.

[This comes into play a little later in the article.]

There is a ray of hope though.

If you have some income, but not enough to match the amount of the insurance premiums you paid, you can still get a little benefit.

You are allowed to deduct the amount of self-employed health insurance premiums to the extent that it brings your Schedule C net income to $0.

Here are a couple of examples:

  1. John has a freelance writing business that’s set up as a single-member LLC which gets reported on Schedule C. It’s the first year of operation and the company reports a loss of $1,500. John also pays $2,500 for health insurance coverage. He cannot claim the self-employed health insurance deduction because there was no business profit to cover the premiums.
  2. Marci is a beauty consultant who operates as a sole proprietor. She reported $5,000 of net income on Schedule C but had paid $8,500 in health insurance premiums. On page 1 of her 1040, she can only claim $5,000 as the self-employed health insurance deduction, because she didn’t have enough profit to cover the entire amount of premium payments.

One thing that can be done, if you itemize deductions and have enough in qualified medical expenses, is to report the premiums that don’t qualify for the self-employed health insurance deduction on Schedule A.

The self-employed health insurance deduction isn’t an all-or-nothing proposition, you can deduct everything you are entitled to as an adjustment to income on page 1, and report the rest with your other medical expenses and it will be totally allowable.

You Can’t Be Eligible For Group Health Insurance

Application for group health insurance
All you need to do is to be eligible for coverage through a group plan to lose the ability to claim the self-employed health insurance deduction

This is where it gets a bit tricky…

You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse’s) subsidized health plan at any time during that month, even if you did not actually participate.

The simple part of the equation is this: if you are covered by group health insurance through an employer, you cannot take your insurance premiums as the self-employed health insurance deduction; you can only claim it as part of your Schedule A itemized deductions (if you itemize).

Almost as simple is this fact: if your spouse is covered by an employer’s group health insurance, you can’t take the self-employed health insurance deduction.

Now, for the tricky part.

Even if you or your spouse are eligible for group health insurance coverage via either one’s employer, you cannot take the deduction for self-employed health insurance; again, it would have to go on Schedule A if you itemize.

It doesn’t matter if your spouse takes no part in your business, or vice versa, the only option you have is to itemize if possible.

The fact to pay attention to–with regard to claiming the self-employed health insurance deduction–is the eligibility to be covered by group health insurance.

Now for the really tricky part.

This can change from month to month.

For any month during which either you or your spouse are eligible for group health insurance coverage, you lose the self-employed health insurance deduction.

BUT…

You can claim the deduction for any month during which neither party was eligible for group insurance.

That means you have to be very diligent when it comes to record-keeping.

First, you don’t want to mess up by claiming amounts you aren’t entitled to, which would be bad.

At the same time, you have to pay attention so you don’t miss out on claiming a huge benefit by being able to deduct portions of your insurance under the self-employed deduction option.

Here are a few examples:

  • Mike is single and runs a landscape architecture business full-time. He is allowed to claim all of his health insurance premiums for the self-employed deduction.
  • Jennifer is single and works full-time in a law firm as a paralegal. On the side, she runs a small event planning service. She has been covered by an individual health insurance plan all year, and on April 25th became eligible for group health insurance coverage under her employer’s plan but chose not to participate. Jennifer can only take the January, February, and March premiums for the self-employed health insurance deduction because she became eligible to participate in the employer’s group health insurance in April. The payments made for insurance premiums from April through December can only be deducted on Schedule A if Jennifer itemizes.
  • Rick and Joan are a married couple filing jointly. Rick is a stocking manager for a home-improvement chain, and has been eligible for group health insurance coverage through his employer for the entire year, but doesn’t participate. Joan owns an online crafts business and has a health insurance policy covering the two of them. None of the insurance premiums from Joan’s plan are allowed to be included in the self-employed health insurance deduction because Rick was eligible for coverage all year (even though he has no role in Joan’s business and doesn’t participate in his employer’s group health insurance). All of the insurance premiums must be claimed on Schedule A.
  • Taylor and Analise are a married couple filing jointly. Taylor began the year as a partner in an ad agency, participating in the company-sponsored group health insurance. She was fired on June 4th, but was hired by a rival in July, becoming eligible for the new company’s group health insurance as of October 17th. Analise is a caterer who maintained a separate individual policy all year. Only the payments Analise made for coverage during July, August and September are permitted to be taken under the self-employed health insurance deduction, because Taylor was eligible with one company until and including June (even if it was just for 4 days), and then became eligible for the new employer’s plan in October. Even though Analise’s policy is just for her, being married made her eligible for coverage under her spouse’s group health insurance, which nullifies her ability to claim the self-employed health insurance deduction for all periods of spousal eligibility. All other premium payments must be reported on Schedule A.

As you can see, it’s not cut-and-dry.

Actually, it’s damn flat-out confusing if you have no experience with income taxes.

Some of the rules can make your head spin and seem completely illogical, but as they say: them’s the rules!

Health Insurance & Self-Employment Taxes

In the first section, I mentioned health insurance payments not being a “business expense” even if it’s paid from a business account.

I said that it will come up again at a later time, and this is that time.

The health insurance premiums paid aren’t considered in any capacity for the purpose of self-employment tax calculations.

On Schedule C, the line for insurance specifically states “other than health”, while 1040 Schedule 1 specifies the self-employed health insurance deduction.

You need to pay close attention while attempting to DIY taxes.

Generally, people will look at their income statement and take a percentage of the net income from that report to remit for their estimates.

Some people may take it a step further and use that figure combined with the IRS Self-Employment Tax worksheet or some website calculator to come up with the exact amount they should pay for their self-employment tax payments.

The thing that people without a background in accounting or tax preparation do wrong is they don’t add back the health insurance payments to the income statement’s net income figure before doing the calculation.

This is important to know because in both of those cases that figure would be short, and you would end up owing more than you thought when it came time to file your income tax return.

Self-Employed Health Insurance Deduction & Medicare

Social Security card and Medicare enrollment form to claim as the self-employed health insurance deduction
Some people may actually be able to deduct Medicare premiums for the self-employed health insurance deduction

Let’s face it, not everyone retires.

Some people continue to run their businesses well into “retirement” simply because they enjoy it or they don’t want to get bored.

Some of those people use Medicare for their insurance needs.

Without getting into the history or the boring legal details (especially since I’m not an attorney and have no business discussing it?) here’s how it works:

You can be on Medicare and still claim those premiums under the Self-Employed Health Insurance Deduction.

In fact, you can even claim your spouse’s premiums as well!

And if you have Medicare Insurance covering under-27-year-old children their premiums are even deductible.

The other rules still apply, however, so be careful that you actually qualify!

Christian Healthcare Ministries Don’t Count For The Self-Employed Health Insurance Deduction

A new trend these days (and over the past few years) is to join a Christian Healthcare Sharing Ministry such as Medi-Share or Liberty HealthShare.

The simplest term for your expenditure within this type of organization is pooled-money contribution rather than an insurance premium.

These types of organizations are generally faith-based and collect a monthly fee from their members, then distribute the money.

Health “insurance” cannot be withheld based on faith–or lack thereof–yay, at least the government has some standards!

This is the first way in which Healthcare Sharing Ministries are don’t qualify as a tax-deductible “insurance” expense because they aren’t.

Rather than paying the bills of the insured to the healthcare provider, the ministries reimburse the individual members, essentially transferring the money between individuals.

In addition, there are some items that are excluded from reimbursement based on Christian beliefs which further prevents it from being deducted as “insurance”–absolutely zero judgment here, but stating a fact because people inevitably wonder “why?”.

So what’s the attraction or benefit if it doesn’t qualify for the self-employed health insurance deduction nor the standard insurance premium deduction?

It’s cheaper than traditional insurance, in many cases outweighing the tax savings.

There are downfalls too, but I suggest you read this review of Liberty HealthShare from Club Thrifty and this review of Medi-Share by PT Money since each is based on personal experience with the respective programs.

Wrapping Up

It’s important to understand that these are only basic explanations and examples of how the self-employed health insurance deduction works.

There may be other limitations on your ability to claim all or part of the deduction based on your particular circumstances.

It’s always my recommendation that you consult a qualified tax preparer when it comes to anything tax-related, especially if you don’t have a background in taxation.

If for nothing else, you can always hire one just to double-check your own calculations.

There are ways to get health insurance without breaking the bank, or giving up some coverage by going with a Christian Health Sharing Ministry. Head on over to eHealth Insurance and let the platform show you all of the different insurance companies you can obtain health coverage with.

eHealth Insurance isn’t limited to just family health coverage, it also covers short-term health insurance as well as plans for small business health insurance if you have a business and think it might be easier to coverage that way.

Your Turn

Were you aware of this deduction? Is this something you might want to look into further to get more value out of your insurance dollars?

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Theresa
Theresa
3 years ago

What about the deduction for long-term care premiums for sole proprietors. Can that still be taken if I have access to group health insurance?

Arnold
Arnold
2 years ago
Reply to  Eric J. Nisall

I don’t think that’s true. You can take the SE Health Insurance Deduction for LTC premiums as long as you were not eligible for employer-subsidized LTC, even if you have employer-subsidized medical. See Pub 535: “These rules are applied separately to plans that provide long-term care insurance and plans that don’t provide long-term care insurance.”

Russ
Russ
2 years ago

A couple I know of has health insurance through the wife s employer. Husband is self employed. She is getting a buyout in dec 2018. The employer is giving her money to pay for Cobra for 2019 treated as taxable wages. She will receive about 65 percent of the full cost of the annual cobra premiums and is planning to buy other insurance that costs much less. Husband. Will be on Medicare as of jan 1 2019. For 2019 can any or all of these premiums cone off as a self employment deduction since part of the spouses buyout will go to her instead of Cobra?

shannon
2 years ago
Reply to  Russ

Depending on the husband’s business, couldn’t he set-up a HRA 105 account and pay his wife as his employee, and all of the monies would go towards health premiums and other medical expenses, even those not covered by the private insurance?

Matt Danning
Matt Danning
2 years ago

My wife has had her own business for several years, and I have been unemployed for most of 2018. As a result, we paid for our own health insurance for the first time. As I understand it, this deduction is only permitted if the health insurance policy is in the self-insured’s name. Unfortunately, I am the primary account-holder on the policy, not my wife, so it seems that the deduction is unavailable to us this year. On the other hand, as we file a joint tax return, and the IRS considers us one tax entity, it seems that there could be an argument for our taking the deduction. Thoughts?

John Smith
John Smith
1 year ago
Reply to  Matt Danning

I am in a similar situation. Will really appreciate if someone could please reply?
The summary of the problem: The policy is in my name but the business is in my spouse’s name. I don’t have any insurance through my employer.
Can we still use the deduction?

Paul
Paul
2 years ago

I am self-employed. My wife is retired and receives our medical insurance through an unsubsidized plan from her previous employer. Can I deduct my portion of that premium in my business? It is not subsidized and my wife’s premiums are not pre-tax?

SAMANTHA RUSEK
SAMANTHA RUSEK
2 years ago
Reply to  Eric J. Nisall

Hi Eric,

Following up on Paul’s question, would the answer be different if it was Paul’s previous employer that the Cobra was through and he was listed as the primary insured? I am self employed and have COBRA through my previous employer. I pay the full cost, so it is not subsidized.

Keith Wiebe
Keith Wiebe
1 year ago
Reply to  Eric J. Nisall

I had the same question and called IRS. THey read off the actual law and we concluded I could have the insurance in my name and claim it on my wife’s self employment. Been doing for years now but have insurance with employee now.

Brian
Brian
2 years ago

I am self employed and my wife covers our health care premiums through her employer. When she retires in September 2019, we will pay our Medicare premiums separately. I will still be self employed. We will file jointly. Can I deduct her premiums that she pays as well as mine as a self employed health premium deduction? Or just mine?

Robin
Robin
2 years ago

I’m self employed and my husband has a health plan through his employer, but dental is not included or available. We had to procure an individual a la carte dental plan. Would this be a deduction for my business?

gina
gina
2 years ago

My husband is retired and is on medicare and also has retirement heath insurance from his former employer. He is self employed as a consultant. I understand that the Medicare part B premiums are deductible thru SE Health Insurance deduction but is his retirement insurance premiums also deductible??

Stephan
Stephan
2 years ago

So, if my husband is self employed & “eligible” for coverage through my employer, even though they don’t pay a dime of the coverage for him, we would not be able to deduct any of the premiums or expenses? Am I understanding that correctly?

Ken
Ken
2 years ago
Reply to  Eric J. Nisall

I have a business (self employed) and my wife earns W-2 wages. Neither of us is eligible for employer provided health insurance. We purchase health insurance separately because I am over 65 and she is not. I have medicare. She does not. I work primarily to pay for “our” health insurance. Her policy does not mention my name. Can I combine the cost of “our” health insurance when computing the cost of our self employed health insurance deduction?

Steph
Steph
2 years ago
Reply to  Eric J. Nisall

Hi, Stephanie again, If my employer offers the HSA plan & we fund it…..can we still take the deductions if our medical expenses are more than 7.5% even if we use the pre-tax funds to pay for them? Or where do you suggest I look for an answer for that?

Susan
Susan
2 years ago

I am self employed, I have 2 Sch C and a Sch F (I wear a lot of hats). None of these business earned enough profit to cover all of the insurance premiums. Can I combine the profits? The insurance is in my name, not my businesses, as I’m a sole prop. If I can’t combine the profits, can I combine the businesses into 1 Sch C (they are not at all similar businesses). Thanks for the help!

Mark
Mark
2 years ago

My wife and I are semi-retired. I earn a nominal income from bookkeeping and am self-employed. I am insured through Medicare, a Supplemental plan and a Drug plan. I make Medicare payments using HSA funds. The Supplemental and Drug plans are paid using other funds. My wife is a substitute teacher at a pre-school and receives a W-2. No insurance coverage is provided. She purchases her insurance through the Healthcare Marketplace and the premiums are subsidized. The net premium is paid using other funds.

My basic question is does my wife receiving subsidized premiums from the Marketplace negate my ability to deduct my premium payments?

Mary
Mary
2 years ago
Reply to  Eric J. Nisall

Taxpayer is self employed and pays medical premiums to state retirement system (deducted after tax from his pension), would you deduct as self employed health?

Nichole
Nichole
2 years ago

I am self employed and provided coverage for our family. My husband is offered insurance at a cost to us. I am being told that because my husband has to pay a portion of his insurance, and because it is not fully covered by his company, i can still deduct the insurance I pay. Can you confirm?
Thank you so much.
Nichole

Barbara
Barbara
2 years ago

Great article! I am barely self employed but wanting to be. I am on cobra since February. I don’t recall seeing anything about my former employer subsidizing it but it was a better deal than the exchange. Assuming it isn’t I have two questions: 1. If I decide to leave and go independent am I considered eligible for a group plan? 2. Regardless is anything I add to the HSA taxable?

Barbara
Barbara
2 years ago
Reply to  Eric J. Nisall

Thanks you so much for clarification! I’m pretty grateful this plan is good because it is one thing that is enabling me to go freelance. Hopefully I can afford similar when or before it runs out.

Tom C
Tom C
2 years ago

Pay about $18,000 through the exchange for family health insurance. If I don’t deduct the self employed health insurance I pay through the exchange, then my AGI for the credit is more than 401% of the poverty level – so I get NO credit on the 8962 for any of the premiums. So, my actual out of pocket for health insurance is $18,000

….But then if I take the self-employed health insurance deduction, my income is below the 401%, and I get a credit for almost all of my health insurance.

….Which, in turn, decreases my deduction, increases my AGI and puts me over the 401%, giving me no credit again.

So – is there some was I can I deduct PART of my self-employed health insurance, get below the AGI threshold, and take a credit for the balance of the available credit?

Anything else to make this thing work?

John
John
2 years ago

Hi Eric.
I’m self employed and I get paid 10k per month.
My insurance is 2,200.

I file together with my wife. She is a stay home mom and I’m the only one with a pay.
We have 3 kids

How much money should I separate for taxes per month?

Zoey
Zoey
2 years ago

Hi – question. Joint return. Wife self employed (profitable), on ACA 12 mos. Husband, retired, on wife’s ACA plan 11 mos, then medicare/supp/rx plan starting Dec 2018.
Reading conflicting whether we can include Dec 2018 Med/supp/rx premium in health care deduction.
Can you confirm and is this anywhere on IRS site, have looked and looked.
Thank you.

Steve
Steve
2 years ago

Hi Eric:

I am self-employed and run a consulting business as a sole proprietor. I retired from the federal government several years ago and still have my health insurance through the Federal Employees Health Benefits Program (FEHB). Am I eligible to deduct the FEHB health insurance premiums since the federal government is no longer my employer? Or would FEHB be considered a subsidized group plan, making my retired status irrelevant and the premiums ineligible for the deduction. (As you are probably aware, the feds cover about two-thirds of the cost of FEHB premiums for retirees, though my one-third share of the premiums is paid in after-tax dollars.)

I’ve seen a lot of conflicting advice on this point in various on-line forums and would greatly appreciate your views.

Steve
Steve
2 years ago
Reply to  Eric J. Nisall

Thanks, Eric. That’s what I thought, but it’s good to have your confirmation. Happy tax season (ugh).

Jamie Hofman
Jamie Hofman
2 years ago

Here’s another scenario that I did not see below: My wife and I are musicians – many income streams. We both have W2 and 1099 income – so we have 2 separate Schedule C’s. I have health insurance through an employer that only covers me. We have to pay (through the marketplace) for insurance for my wife and our son. The insurance premiums are more than all of her Sched. C income, but not more than mine. Can we count our *combined* 1099 income against the premiums to deduct all of our marketplace health care premiums? Can I count it against my 1099 income for maximum deduction? From IRS Pub 535: “You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents.” I can’t find any guidance online. You really sound like you know what you’re talking about. Please help!

Tommy
Tommy
2 years ago

My situation, I am self employed and a retired school teacher. I purchase my former employer group health plan. It is not subsidized but I do get a $150 monthly health stipend. So currently, I pay $16000 – 1800= $14200 a year for health care. Can I deduct that as against my self employed earnings or no because I am buying insurance from my former public employer’s group plan? The insurance is not subsidized but from my pension I get the 1800 a year.

Joan Knox
Joan Knox
2 years ago

I am self employed although have a health insurance policy through a company I contract with. They pay half the premium and I pay the other half. Can I deduct my half of the premiums?

Joan Knox
Joan Knox
2 years ago
Reply to  Eric J. Nisall

So if the plan is not in my name, it is not deductible for self employment. Would my portion be eligible toward the qualified medical expense deduction? Also, what am I responsible to pay taxes on – my portion for my health insurance that is taken from my check or the entire portion including the portion paid by the company I’m contracted with? Thanks for the info…it’s very helpful.

Gina Morris
Gina Morris
2 years ago

Hi Eric, I retired in May from a school system in TN. I was a teacher’s assistant and had health insurance for my family the entire time I was employed (12 years). I have the opportunity and have elected to keep the TN State based health insurance, but we have to pay the entire premium. My husband is self-employed. Will we be able to take the insurance premium deduction?

Terri
Terri
2 years ago

I have been on my self-employed husbands AHC policy, but will be going on my own medicare policy next month. Can my Medicare Supplement policy (in my name) and Pts ABCD be included in his self-employed health care deduction?

Terri
Terri
2 years ago
Reply to  Eric J. Nisall

Particularly the Supplement, it is not through medicare, but through an insurance company in my name. That also?

Joe
Joe
1 year ago

I bought health insurance through the California exchange. I get part of my premiums paid by ACA, I pay the remainder. Is the part I pay deductible? I’m a sole proprietor. Thanks.

Three Links
1 year ago

Defineately bookmarking this. Thank you for the informative post.

Howard
Howard
1 year ago

Hello Eric, your above article covered exactly what I was looking for with regards to the self employment deduction. I am already full Medicare eligible but still work full time for a company and have their health plan to cover myself and my self employed wife who will not be Medicare eligible until next November (2020). At that point I plan to explore leaving the company plan and taking full Medicare for us both if it will save us money with more coverage.

However with regards to her being able to deduct our Medicare coverage expenses, I understand as above if the company offers a plan. The minimum for qualifying for our company plan is 30 hours per week of work, if I elected (and am exploring) to work less than the 30 mandatory hours (say 25) then does that change our ability to claim the Medicare on her self employment return? If I work less than 30, the health plan is not even available to me .

Is that a possibility? Thanks for your insight.

Howard
Howard
1 year ago
Reply to  Eric J. Nisall

Good morning Eric,

Thanks for your reply. Yes she would have the business profit to take advantage of the deduction.

So is there some gray area here? My company will still have a health plan available to full time employees, but if I work less than (30) hours I would not be eligible to access it, does that make a difference?

Howard
Howard
1 year ago
Reply to  Eric J. Nisall

Great! Thank you Eric for clearing that up, will be a tremendous help to us when that time comes.

Yolanda Y Giboney
Yolanda Y Giboney
1 year ago

I am self-employed and have enough profit to cover medical premiums. I am also on medicare so it’s pretty clear that my premiums are deductible, except for the fact that my husband, still under 65, elected COBRA after he retired early in the year. So for this year, since I could have elected COBRA coverage (but why?) I’ve lost the SE insurance deduction I was planning for. Next year, we have planned for him to use the marketplace or some other private insurance for his own policy until he reaches 65. In reading previous posts, I understand that once we are both on medicare, all premiums are deductible. If my husband were the self-employed individual and had a policy in his name, my medicare would also be deductible. But since i am the self-employed one, my husband’s premiums are not includable unless the policy for him is in my business name which is simply my name. Am I reading this correctly?

Chad
Chad
1 year ago

Can one take both the Self-Employed HI deduction and receive ACA subsidies? I am the sole owner/employee of an LLC (taxed as an S-corp) and always take the Self-Employed HI deduction. I follow the byzantine rules to get the deduction: company reimburses me at year end for premiums paid, include premiums in box 1 of W-2, don’t include premiums in boxes 3&5, etc….

My income this year was unexpectedly low and I would have been eligible for ACA subsidies. I am Head of household with myself and 15 y/o son. We have separate individual policies. His was purchased from healthcare.gov without subsidies (estimated income too high) and mine is a grandfathered non-ACA compliant plan purchased directly from an insurer. His premiums are 4x greater than mine.

I’m not sure if I should follow my standard protocol for getting the SE HI deduction or if I need to/should forego that and instead hope for an ACA subsidy credit on my tax return. I’m worried I’ll disqualify myself from the potentially more beneficial ACA subsidy if I do my normal procedure for getting the SE HI deduction.

I’m struggling to find direction on this. My experience with accounting firms is they fail to give accurate guidance on just the SE HI deduction, let alone the much more complicated situation I’m in. Any help would be greatly appreciated.

Chad
Chad
1 year ago
Reply to  Eric J. Nisall

Thanks Eric. My son’s plan was purchased through the ACA Marketplace (healthcare.gov) so it should be eligible for subsidies. That plan accounts for about 80% of our combined annual premiums. My plan is not eligible.

If my company reimburses me for premiums I imagine it should only reimburse the total AFTER subsidies. I don’t know what my subsidies will be until I file so that’s a problem. My company needs to reimburse me for premiums prior to Jan 1. Note that I use a cash-based method of accounting. Do you have thoughts on how I should handle this?

Regarding the nuances of claiming the SE HI deduction, I’d venture a guess this is one of the most underutilized and improperly claimed deductions available. I’ve seen multiple accounting firms do the entire process incorrectly time and time again – even fail to instruct companies to claim the deduction despite being eligible. In terms of filing, the W-2 and Form 1120s are the “easiest’ parts but even those aren’t clear per IRS instructions. Instructions are also obscure when filing forms 940, 941, and the state unemployment form. I recall my university Advanced Accounting teacher being flummoxed by this deduction and having to explain the entire process to him.

Chad
Chad
1 year ago
Reply to  Eric J. Nisall

This makes sense Eric. Thanks a lot for your help!

Chad
Chad
1 year ago
Reply to  Eric J. Nisall

Eric, is the SE HID considered an “employer-sponsored plan” in the case of a > 2% s-corp shareholder where the s-corp reimburses the owner for premiums paid? I seems you’re saying it’s not considered an employer-sponsored plan but I want to be sure.

The IRS says “If you enroll in an employer-sponsored plan… you are not eligible for the premium tax credit for your Marketplace coverage.”

I will receive more benefit from the HI premium subsidies than the savings from the SE HID, so if it is considered an employer sponsored plan I will skip letting my company reimburse premiums this year and forgo the SE HID.

Chad
Chad
1 year ago
Reply to  Eric J. Nisall

Thanks. So even though the insurance is “established, or considered to be established under the business” (an IRS requirement for the SE HID), it’s not considered an “employer-sponsored plan.”

That’s what I needed to clarify.

Flo
Flo
1 year ago

What a valuable site! I ran across it while waiting an hour for SSA to return my call, and have it bookmarked now. I asked SSA this question: Are health care premiums reported to me as wages on a W-2 considered earnings for purposes of SS eligibility? Spouse and I own an S-corp 50/50, and it makes the payment for our individual Marketplace plan. Spouse is the only employee, but I get a W-2 just because of the health insurance. We deduct 100% of the premiums from income on line 29 of our joint 1040. SSA representative said they look only at AGI on line 7 and not at W-2s, so I can continue to have the S-corp pay my premiums even after I begin drawing SS next year. Eric, do you agree? Thanks for your help.

Flo
Flo
1 year ago
Reply to  Eric J. Nisall

Whoa! SE HI is NOT subject to SS and Medicare tax, right? My understanding is that reimbursement for SE HI is included on the W-2 in boxes 1 (federal) and 14 but NOT in boxes 3 and 5 (Social Security and Medicare), as others have posted here, and as I have always submitted the info (https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues). Because SE HI is 100% deductible on line 29 of the 1040 for >2% shareholders, that amount reduces AGI. This is important in “understanding the self-employed health insurance deduction” as it applies to a self-employed S-corp owner who draws or plans to draw SS before full retirement age.

Craig
Craig
1 year ago

I am a sole proprietor and qualify for the deduction based on what is said here. For 2018, I got my insurance from healthcare.gov and received a subsidy, because it looked like my income from my business would be below $69,000. The premium was $2000 a month and the subsidy was $1725, leaving me to pay $275 per month. My business was better than I expected and my income will be above the top threshold for a subsidy meaning I will have to pay the $1725 per month back. Am I able to deduct the whole $2,000 per month (since I will have to pay back the $1725 subsidy) or just the $275 per month that I have paid out of my own pocket? Thanks!

Craig
Craig
1 year ago
Reply to  Eric J. Nisall

Thanks! One last question. The 20% deduction for pass-through income that is taken on the same line as the insurance premium deduction. You can take advantage of both the insurance premium deduction and the pass-through deduction, correct?

Craig
Craig
1 year ago
Reply to  Eric J. Nisall

Thanks so much for your effort. Your site has lots of good info and I’ll return often

Nancy Fosheim
Nancy Fosheim
1 year ago

My software (Tax Slayer) allows me to adjust my SE income ($3000 net from Board of Director fee) with BOTH SE health insurance AND IRA contribution. I am retired and do not have a retirement plan. So my total adjustment, after $212 SE tax, is $5576 ($2788 x 2). This seems like double dipping, am I missing something in the software?

Brian
Brian
1 year ago

Eric, thanks for this post. It’s much clearer than any other site I visited. I’m self-employed and am the only income for my family of 5. I just got my 1095-A and discovered it was “wrong”. By wrong, I mean that I know I paid $416 every month for my premiums but my 1095-A gives a figure of $310.75 in column A. As I understand it, this is what I was credited for as essential services. Apparently I chose a plan with extra services, including dental. Assuming I am well within income thresholds and the like, it seems to me that I should be able to additionally include $1263 (416-310.75 * 12) as self employed health insurance deduction. Maybe this part of the tax code is obvious to everyone except me which is why I can’t seem to find a definitive answer.

*edit Looking at this again, my column C amount was $227.85. So really I paid $188.15 out of pocket every month. Perhaps I can actually claim $2257.80 as a SE HI deduction?

Thanks for your input

Doug
Doug
1 year ago

Hi Eric,
This site is incredibly helpful. In 2019, I was 100% self employed as a consultant via my single proprietor LLC and had enough profits to cover my health care premiums, but I was on COBRA for the full year so I now understand I cannot deduct those premiums. Starting 1/1/20, I am now paying directly for health and dental insurance through the Mass. Health Connector for me, my wife (unemployed), and my high school son. The insurance policy is in my name. So, I also understand I will be able to deduct those premiums in 2020 if I generate enough profits. However, as of the moment, it is unclear if I will generate enough profits as I may choose to be a part time employee of a company (where I may or may not qualify for health insurance) and not focus on generating any LLC revenue.
My question is this – is there any downside of paying my monthly health care premiums from my LLC business bank account, and it later turns out that I didn’t have enough (or any) profits in 2020? Or should I just pay the premiums from my personal account, and could still use the deduction if it turns out that I do generate enough LLC income?
Thanks for your help!

T will
T will
1 year ago

My husband and I are both self employed. I deduct our health insurance premiums under my business. I plan on retiring in March (not FRA) if I start my social security but continue to work a few times a month but not go over the 1500 allowed. 1) Are my premium still deductible? 2) if they are still deductible and come off my gross amount can I make more than the $1500.
For instance say I pay $1200 in premium. If I make say $2000. That is only really
$800 I made.

t will
t will
1 year ago
Reply to  Eric J. Nisall

It is not Medicare, I am 62. It is an Anthem BCBS non ACA plan. and other than licenses and CEUs I have few business expenses. this year will not be a problem since working first 3 months of the year. it will more than cover those costs. But what about the social security part if I decide to start that?? Am I limited to the $1540 a month even though the insurance premiums will take $1300 of it?? Or can I make like $2000 a month. knowing that $1300 is going to insurance premiums.

John
John
1 year ago

Eric, I am be facing a situation where the deductibility/”ability to expense” health care premiums is unclear to me. Sorry there is a bit to this post…

Item 1:
You wrote (and I have seen similar) that “You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse’s) subsidized health plan at any time during that month, even if you did not actually participate.”

I will be losing my job (and company-paid health benefits) on April 1. My wife is a dentist with a plan set up for her employees that we could pay premiums to for our own coverage, as an alternative to COBRA.

I if I voluntarily elect to not choose COBRA and instead we pay for health insurance in my wife’s plan, does that mean I would have beee “eligible” for health insurance (through declined COBRA) so we cannot deduct premiums? Again, I am NOT asking about deducting COBRA payments, but if we choose NOT to have COBRA but pay our own through her existing business’ health plan. Since it was my CHOICE not to have COBRA, does that mean I was “eligible” so cannot deduct our premiums, or does “eligible” just mean there is some plan available so applies only if I am actively employed?

Is the above answer true even if I keep COBRA for several months first and then choose to leave COBRA voluntarily after I have started it? (I may use the 60 day grace period for opting in to COBRA to but it only if necessary (if there is a health emergency in those 60 days), but even if I do, I would want to cancel the COBRA after to with to my wife’s plan IF it becomes deductible if I choose to leave COBRA.)

—-

Item 2:
As a separate question, I believe I have learned if we ARE eligible to deduct health care premiums for payments to my wife’s plan, the deduction is on Schedule 1 not Schedule C so does not reduce self-employment tax.
Would it make financial/tax sense for me to become an employee of my wife’s dental practice while not doing other work (I do bookkeeping and computer work for her), to get paid wages AND then she could deduct health care costs fully to me? I figure if she earns (say) 120K to start but then pays me $10k salary plus $30k for health benefits (the 30k is fairly close to a real number per year), her business can expense the entire 40k, and has now earned $80k for self-employment tax purposes. I would have to pay employee payroll taxes on the 10k and she pays employer payroll taxes on the 10K (instead of self-employment, but it nets out), but not on the 30k for healthcare, saving around 15% (or 12% after the self-employment tax deduction from income tax) on the $30k, or nearly $3600 per year. Am I missing something here or is that a potentially smart/legal thing to do (to become her employee for the work I am volunteering for her now)?

Thank you for any information you can provide on items 1 or 2.

John
John
1 year ago
Reply to  Eric J. Nisall

Thank you for your reply. I came to your site by googling about my question for a long time, with no good attempt at answers except seeing yours, and wasn’t really sure who you were although I have read a bit on your main page. I think your advice about talking to a CFP really clicked with me. I had never really considered what a CFP does, and my accountant (CPA) is not expert at these rules and told me such himself… More a general business accountant, not versed in rules about health insurance deductibility subtleties (although he knew it goes on schedule 1, not schedule C…) . I wasn’t sure who has this kind of knowledge, and your answer to the general-planning-path thing (to consider talking to a CFP) kind of clicked. The time you take answering questions like this is really quite amazing to see (just from all the responses you have given) and it is really appreciated.

Laura
Laura
1 year ago

Great article – thank you! I am “retired” and also a more than 2% owner in an S-Corp. In order to treat my medicare part b premiums withheld by ssa as self-employed health insurance, do I need to have the S-Corp reimburse me for my medicare premiums and report them on a W-2?

Kel
Kel
1 year ago

We took out a health insurance policy in my husband’s name when we set it up on the Marketplace. He works part time at a company and is not eligible for the insurance there. I am self employed and I am on the insurance policy too. If it were in my name, we could obviously take the deduction. So are we not allowed to take the self employed deduction if the primary policy holder is him…even though we are both on it and married filing jointly? This is confusing….

Carl
Carl
1 year ago

Hi Eric, this is really great information, and the comments and responses are very helpful. In my situation, I am a partner in an LLP that has a group plan, but the premiums under the group plan are not subsidized for me as a partner. I would like to go with a different, private health insurance provider/plan, but I want to confirm that the premiums that I pay out of pocket for that private health insurance plan will still qualify for the deduction. Any thoughts?

Brian Daly
Brian Daly
10 months ago

Eric–I would take a look at IRS Prop Reg (https://s3.amazonaws.com/public-inspection.federalregister.gov/2020-12213.pdf).  Healthcare sharing ministries will be treated as medical insurance.

Abe Feldman
Abe Feldman
10 months ago

Thanks Eric! Concise information.
If Spouses of S-corp officers (that own > 2%) are counted as officers themselves for health insurance purpose (like no HRA etc…). Shouldn’t they be able to have insurance policies on their own name and deduct it on their personal 1040 just like the real officer does? 

J L
J L
8 months ago

I have searched but don’t see this scenario, maybe I’m just missing because there is a lot of great info. I am self employed independent contractor (1099). My husband receives W2. Neither of us is offered any kind of health insurance so we have to purchase through marketplace. When we set it up we purchased policy in his name but it covers both of us and child. Can we use self employed premium deduction since part of the reason I have to work is to help pay for insurance, even though policy is not in my name I am on it. I’m not sure how we would even go about trying to change the policy to my name if that is the only thing that makes a difference. Thank you for any help you can offer!

Kevin O'Byrne
Kevin O'Byrne
7 months ago

Hi Eric.  My wife and I are both retired and on Medicare.  We are enrolled in a Medicare Advantage plan through my former employer that is partially subsidized.  We also have Medicare Part B premiums deducted from our Social Security Benefits each month.  My wife was self-employed for part of 2020.  Based on the fact that we are enrolled in a subsidized Medicare Advantage program it would appear that we would not be eligible to include any of our premiums in the Self-Employed Health Insurance Deduction.  However, I was wondering whether the Medicare Part B premiums ALONE might still be deductible, given that these are entirely separate from my former employer’s Medicare Advantage Plan.  Eric, I know this is a long shot but hey, you can’t blame a guy for trying.  Thanks so much for sharing your time and expertise!