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…
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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.
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:
- 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.
- 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
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.
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
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 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.
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.
Affordable health Insurances
Looking for medical insurance, dental/vision, or small business health insurance? eHealth has multiple options for you all in one place.
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?
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.
First off, the way you are accounting for the reimbursement of your health insurance premiums on the W-2 is correct–not byzantine, just the only right way to do it as a >2% S-Corp shareholder.
As for the other question, you should only be entitled to the Self-Employed Health Insurance Deduction. The way I understand it, only ACA Marketplace plans are eligible for the Premium Tax Credit. While your health insurance plan was grandfathered in for the purposes of being considered “acceptable coverage” it didn’t qualify to be treated the same as the ACA plans.
I’ve personally never had anyone on such a plan, so you may want to check with healthcare.gov or the insurance company itself to verify.
Just to give you an idea of how it would work with an ACA plan: you would first enter all of the premium information from the 1095-A along with your income and deductions. On the 1095-A info screen you will mark that it is related to self-employment income and the program will do all of the necessary calculations. Whatever premiums that weren’t covered by the subsidies or any additional credits you qualify for are then transferred to the Self-Employed Health Insurance Deduction to the extent that it doesn’t bring your self-employment net income below zero.
Long story short: you can claim both the Premium Tax Credit and the Self-Employed Health Insurance Deduction if everything fits.
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.
You should pay yourself what the out-of-pocket, monthly premium payment is since that is what you are actually paying.
If you end up getting a tax credit, it doesn’t really matter because it’s a personal tax issue and not a business one. Your business isn’t technically taking “insurance” as an expense, but instead is taking the increase in your salary for the insurance reimbursement as the expense. That is the reason for it being put on your W-2 as wages and only for federal/state income taxes and not Social Security or Medicare.
This makes sense Eric. Thanks a lot for your help!
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.
They are 2 different things, Chad.
An “employer-sponsored plan” is health insurance provided by the employer and set up in the name of the employer.
The Self-Employed Health Insurance Deduction is a deduction on the return for qualified taxpayers.
If your company reimburses you for your Marketplace plan it is not an employer-sponsored plan, but rather simply a reimbursement of personal coverage.
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.
Yes. That is correct.
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.
I cannot speak to your specific Social Security situation in terms of what will be taxable or not or what they look at since I’m not a social security expert.
BUT, I can confirm that the reimbursement for the Self-Employed Health Insurance that goes on your W-2 is not taxable all around–meaning for federal, social security and medicare. So, they aren’t considered “earnings” for all calculation purposes.
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.
I apologize Flo.
I meant that it is not all-around taxable and aren’t considered earnings for all items. In my haste to go through the comments this mornings, I mistyped, and went back and made the correction so anyone else doesn’t get confused.
But to that point, different calculations take into consideration different components and I still cannot answer that part of your question.
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!
Once you put the numbers into your tax return, the program will do all of the calculations to determine what your actual deduction will be. Assuming you end up having to repay the entire subsidy, you should have the full amount of your responsibility available for the Self-Employed Health Insurance deduction when the repayment of the subsidy is calculated. However, I cannot say for sure without seeing all of the numbers relevant to your return.
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?
Generally speaking, yes both are allowable on the same return.
Thanks so much for your effort. Your site has lots of good info and I’ll return often
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?
I’m afraid I cannot help you because I’m not TaxSlayer support and you are giving only a small piece of the picture. I would suggest contacting TaxSlayer so they walk you through the process you should be following in order to input the adjustment correctly and in the proper places.
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
I’m not an expert in what makes up those figures or how they calculate the forms, so I would call to find out exactly what makes up the payments being reported. That way, if you have stuff that isn’t included you know that you have to account for those separate payments when reporting self-employed health insurance premium amounts.
I can’t speak to the actual calculation, but I can tell you that the program you use will take into account the Premium tax Credits and what your out-of-pocket premium liabilities were and then apply the proper amounts to the Self-Employed health Insurance Deduction. Nothing can be done until all of the numbers are in the return.
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!
If you are a Single-Member LLC treated as a Sole Prop for tax purposes then the insurance premiums are not business expenses and should be paid out of your personal bank account. Then on the 1040, you will be able to deduct premiums for the time that you were not eligible to be covered under group plan should that happen plus have enough profit to cover some-or-all of the health insurance premiums under the Self-Employed Health Insurance Deduction.
You should not be paying the health insurance premiums from the business account since it’s not a business expense the way you have your business structured right now.
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.
Medicare insurance premiums are still deductible as long as you have the net profit to take them. The net profit you must have is based on your income minus regular business expenses on schedule C. That amount must be enough to cover the Medicare premiums for the Self-Employed Health Insurance Deduction, not taking it off of the gross income directly–unless you only have income and no other corresponding expenses.
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.
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…
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.)
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.
For the first situation, COBRA doesn’t fall into the category of “eligibility”. So by foregoing COBRA insurance you are not eliminating yourself from the Self-Employed Health Insurance Deduction through your wife’s business’s health insurance plan. If you took the COBRA coverage for the 60 days, you could claim the SE Health Insurance Deduction for the months of other coverage following that grace period if your wife adds you to her own coverage but adding you as another member under the plan as an employee makes you an employee and not “self-employed” for the sake of the deduction.
For part 2, you are correct, the Self-Employed Health Insurance deduction is an adjustment to your personal income affecting AGI, but not touching Schedule C as to impact your self-employment taxes. I honestly could not speak any further about the tax- or financial-sense as I do not know your complete financial or tax picture.
This is a perfect scenario for which you would want to engage a CFP to do an analysis of your entire financial picture and guide you in terms of the best health & retirement plans for the business as well as personal money moves to make (ie: HSA, Individual investment and retirement options, the health coverage, etc.).
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.
I appreciate that John!
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?
Yes, to deduct Medicare premiums under the self-employed health insurance deduction you would need to show the premiums on your W-2 as wages.
Then it all flows through to your personal return where you report the total income and then the deduction for the self-employed health insurance premiums.
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….
I agree that there are some pretty confusing parts of the Self-Employed Health Insurance Deduction, but that one is straight-forward:
The owner of the business has to have the insurance coverage in their or the business name to be deductible in this regard. Otherwise, you can still deduct your premiums under the medical expense section of Schedule A if you qualify to itemize and can deduct them.
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?
Without knowing all of the details, I can only reiterate the fact that if the plan isn’t considered “employer-subsidized” then you should be able to go out and purchase your own policy. If you do that and the LLP reimburses you, it needs to report that on your K-1 as part of your guaranteed payments.
I’d suggest running it by your accountant/attorney since they would have more info regarding everything than I do.
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.
That is indeed the case, except for the fact that it isn’t finalized yet and it wouldn’t take effect until 1/1/21 if it indeed is finalized.
I prefer to deal in assurances and if the rule does go into effect, will be sure to make an entry here to reflect that as such.
Thanks for the comment!
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?
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!
Hello J L.
One of the key determinants of the deduction is the way the insurance is titled. You would need to have the insurance in your name or that of your business in order to take the deduction. That’s because your husband is is an employee who is not self-employed but is the titled owner of the insurance policy. If all things were the same and he had a business on the side–a legit business and not just something that only has enough income to cover the insurance premiums–then you would 100% be entitled to take the deduction. As for how you would go about changing the policy information, the only thing I can suggest is to contact the insurer to see if it’s possible to change that info.
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!
You are absolutely right that it is a long shot…the longest of shots in fact hahaha.
I wish I could surprise you and tell you that you can look at the insurances independently but alas, you cannot.
What about a case that hovers around the poverty level for a person with self-employment income? If I take the deduction on Sch 1 allowed for health care premiums through the marketplace for self employed persons, my taxable income falls below the poverty level and I can not take any Premium Tax Credit. If I don’t take that health care deduction then my taxable income stays above the poverty level and I can take the Premium Tax Credit. Can I just not take that credit, and therefore receive the Premium Tax Credit benefit. (I can’t itemize.)
Nothing I write is telling you which path to take on your own income ta return…I’m only telling you what the requirements are.
It is up to you to file your income tax return in the manner that gives you the most benefit (legally) whether that be claiming a deduction or ignoring it in order to get a larger benefit by qualifying for something else.
You’re not even required to claim deductions, only your income so if you don’t want to claim a deduction in order to qualify for a credit, that’s up to you.