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.
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:
- 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.
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
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.
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.
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Looking for medical insurance, dental/vision, or small business health insurance? eHealth has multiple options for you all in one place.
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?
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?
Hello Theresa!
Unfortunately, it’s all or none. If you qualify, you can deduct all of the premiums–medical, dental or long-term care. But if you don’t qualify, then you can’t take any under the SE Health Insurance Deduction, but you are still allowed to take them on Schedule A if you qualify to itemize.
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.”
Yes, I misspoke…I should have framed my answer more clearly and stated that the LTC premiums can be looked at separately but the rules are still the same in terms of the deduction being based on group plan eligibility.\
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?
Hey there Russ!
It doesn’t matter if the employer will be reimbursing your friend…if the plan was created by the former employer then it doesn’t qualify. If your friend established the COBRA plan under their business, then it qualifies for the Self-Employed Health Insurance Deduction.
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?
If there were no other tax considerations, that might work Shannon.
By adding someone as an employee, the business now has to file quarterly payroll tax returns as well as incur federal and state unemployment tax insurances, not to mention filing the annual employment & unemployment tax returns. The business is responsible for paying SS/Medicare as well as both of the unemployment taxes, not to mention the time considerations or physical costs of having someone external to the business file the tax returns.
Then you have to consider the earnings become taxable which means they would be adding income to “save” on the insurance.
It’s more complicated in practice than in theory, and then you have to consider the information we do not know!
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?
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?
Hello, John (and I apologize Matt if you see this for not seeing your question).
If you look at this link for the IRS guidelines on the Self-Employed Health Insurance Deduction right in the middle of the page it gives you this description for the establishment of the plan:
In short, the person who is the business owner can cover the spouse, but not the other way around. So, if you change the insurance policy titling, that will enable you to take the Self-Employed Health Insurance Deduction for those premiums.
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?
Hello Paul!
In order to qualify for the SE Health Insurance Deduction, the insurance needs to be written in the name of and paid by the business owner or the business. So, in your case, because the insurance doesn’t fit either of those aspects, the insurance doesn’t qualify. Even if you pay for your “share” you still miss out on the part regarding who is named on the policy.
Sorry for the bad news, but that’s just how it is with the rules written the way they are.
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.
Hello Samantha!
It wouldn’t make a difference because the insurance needs to be established in the name of the individual who is the self-employed or the business they own. The COBRA plan is an extension of the employer-provided health insurance, which means it is written in the name of the former employer which disqualifies them from deduction–even if the individual pays it.
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.
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?
Hello Brian!
You can actually deduct both premiums assuming your wife is no longer *eligible* once her separation date arrives. Some employers will allow their employees to continue through the end of the year or the sign-up period, and simply being eligible is a disqualifier for the deduction.
Assuming it’s a clean break, you can absolutely deduct both!
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?
Hi Robin!
If the employer doesn’t offer the dental at all, then you would be able to deduct it under the Self-Employed Health Insurance Deduction as you aren’t eligible for that particular insurance.
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??
Hello Gina!
No insurance is going to qualify as long as the former employer is paying for part of your overall coverage. That is one of the qualifiers–even being eligible disqualifies your premiums.
If/when he fully leaves that arrangement, then all insurance for you both with qualify for the SE Health Insurance Deduction, but not until then.
Those premiums still count toward the Schedule A Medical Deductions should you qualify.
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?
Hello Stephan!
That is correct.
As long as your or your spouse are eligible then the Deduction is off the table–even if you/spouse decline coverage. It’s the simple fact of being eligible that is the qualifier.
Those premiums still count toward the Schedule A Medical Deductions should you qualify.
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?
Hey Ken!
Unfortunately, the way I interpret the rules, you cannot do what you are proposing. If you were paying for a family plan with her on your coverage, that would be ok. If your Medicare was for her you could do that. but because she has her own insurance in her own name you cannot combine the two under the SE Health Deduction.
If you qualify to itemize and deduct medical expenses, her premiums would be allowable under that section, but only there. You can also see if her insurance is eligible to be paid in conjunction with an HSA which may make the contributions deductible if you qualify, but that you’d have to take your specific numbers and see.
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?
Hello Stephanie.
No, you cannot take a deduction for those expenses because they are coming from the HSA funds. IF you don’t have enough money in the HSA to cover everything and you have to come out of pocket, then you can deduct them if you itemize and have enough to exceed the floor.
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!
Hi Susan.
You pretty much answered your own question–you shouldn’t be combining businesses that aren’t similar. When you file your return, there should be a section of the program for that exact situation: insurance across multiple businesses. if not, I would contact the support to find out how to do it.
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?
Hello Mark.
Your wife’s marketplace insurance doesn’t negate your ability to deduct anything. it’s the fact that you pay via HSA monies which are already pre-tax which disallow your deduction. That’s double-dipping, which is a big no-no. You can deduct your supplemental coverage and drug coverage because you pay those with after-tax money but remember that you need to have enough profit to cover the deduction–you can’t take a business loss because of the health insurance deduction.
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?
If those premiums are part of a subsidized or group insurance plan then it’s not eligible for the SE Health Insurance deduction but still eligible to be claimed on Schedule A if possible.
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
Hi Nichole.
Unfortunately, the way it is worded, as long as you are eligible to be covered by a spouse’s employer’s subsidized plan, you cannot take the Self-Employed Deduction. I understand that it doesn’t cover everything but the disqualifier is that you are even eligible for the coverage.
That doesn’t prevent you from potentially claiming the deduction on Schedule A if you itemize. You just can’t deduct it as the Self-Employed Health Insurance Deduction.
What you can try is to see if your husband has access to an HSA via his employer or if you can set one up on your own. You may be able to deduct the contributions to the plan, and use those funds to pay for the balance of the coverage. That, in essence, is the same thing as you get a deduction, just a different way.
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?
Hello Barbara!
Technically you aren’t eligible for group coverage, but because you’re on COBRA you cannot deduct those premiums because the former employer is the owner of the policy not you nor your business.
As for the HSA, contributions may be deductible based on the type of health coverage you have. But anything that you pay out of HSA funds is not deductible since you are already getting a tax deduction for the contributions and that would be double-dipping if you do so.
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.
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?
Hey Tom!
Can you itemize? If you can apply those premiums to the Schedule A, that doesn’t impact your AGI. That’s essentially the only way to make it work it sounds like from what you are describing. Of course, I don’t have access to all of your information so there might be other pieces that fit into this equation. Your best bet might be to either speak to a professional return preparer or an independent insurance agent to change plans.
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?
Hello John
This is the type of situation that gets people into trouble. You need to provide a whole heck of a lot more information in order to get a quality response. Lucky for you I’m not the type of person who will spout out some bs answer and lead you in the wrong direction just to seem smart like what I’ve seen on other sites and social media.
If you’d like to get deeper into this situation feel free to schedule time with me on Clarity.fm. Or I’d suggest making an appointment with an accountant who you trust and can spend time with, giving them all of the financial information that would be needed to calculate what you’re looking for.
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.
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.
hi Steve.
Unfortunately, because the government plan is a subsidized group plan it is exempt from the deduction–particularly of interest is the fact that you continue to pay the premiums you paid as an active employee. Even though you aren’t currently employed by the government, you are still eligible and covered by that plan. You can still deduct the premiums you pay as part of the medical expenses section of Schedule A if you qualify for that.
In all honestly, the tax savings will most likely pale in comparison to the cost savings you enjoy vs if you had a “regular” insurance plan plus the deduction.
Thanks, Eric. That’s what I thought, but it’s good to have your confirmation. Happy tax season (ugh).
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!
Hi Jamie.
Actually, the answer is in the article and in the IRS Publication–the policy must be in the name of the business or the business owner.
That means if your wife is the named policy owner which covers her and your son, then only her business is eligible to take the deduction.
You cannot take the deduction even if you had the policy because you are eligible for coverage through your employer which disqualifies your business from the deduction regardless of who else might be covered.
And just to clarify–if she and your son are even eligible to be covered under your plan with the employer, even if you decline the coverage, no one can claim the Self-Employed HI Deduction at all.
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.
Hello Tommy.
Unfortunately you cannot use the premiums for the SE Health Insurance Deduction. You are on a former employer’s group plan which is one of the qualifiers for exclusion. If you were to leave that plan and be forced to seek out coverage on your own, and established in your name or that of your business, that would qualify.
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?
Hi Joan!
There’s a big part of the equation missing from your description: is your insurance under the company’s subsidized employee plan? If it is, then you cannot deduct any of it.
If you have set up the insurance under your own name (or your business name) and they simply reimburse you for half, then you can deduct your half.
The key is in how the plan is set up and in who’s name.
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.
That’s correct Joan. The IRS is clear that the plan has to be in the name of the business or the business owner in order to be deductible under the Self-Employed Health Insurance Deduction.
You can absolutely add the portion of the premiums you pay to all of your other medical expenses and use that for itemized medical expenses if you qualify.
As for taxes, it sounds like they are paying for your insurance in lieu of part of your invoice so technically it’s still income to you. you would have to report the total amount of your invoice as income. I suggest you speak with a tax professional to get a better understanding of what you need to do in your specific situation. I am more than happy to offer services, and you can book time with me here: https://clarity.fm/eric-nisall if you’d like.
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?
Hello Gina.
Unfortunately it won’t be deductible under the Self-Employed Deduction. Even though you are paying for the full premium, it’s still a group plan written under the employer’s and not you/your husband’s name (or his business). If you were to leave that and get a separate insurance plan independent of any group or employer and under you husband’s name or that of his business you could take advantage of that particular deduction.
However, if you qualify to itemize on your tax return, you may be able to claim a deduction for the premiums along with all of your other medical-related expenses.
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?
Hello Terri.
Yes, you will be allowed to include your Medicare premiums in the calculation for the Self-Employed Health Insurance Deduction. All parts of Medicare are included in that.
Particularly the Supplement, it is not through medicare, but through an insurance company in my name. That also?
Yes, as long as it’s an actual insurance plan offered by an insurance company, then it also can be included in the deduction.
Things like prescription discount plans or pooled money groups would be disqualified but what you’re looking at is good 🙂
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.
Hello Joe.
The Self-Employed Health Insurance Deduction depends on what happens on your tax return. The Premium Tax Credit–which reduces your share of the insurance premiums–is based on income, you may have some extra credit to claim or have to pay some back when you actually file.
When the numbers are all final and the return is calculated, you will know if anything is deductible. Remember that you must also have enough Schedule C net income to cover any premiums allocated to your responsibility. If you don’t have enough, the deduction will be limited and if you have a loss, you will lose any deduction.
Defineately bookmarking this. Thank you for the informative post.
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.
Hello Howard.
There are a few things that need to happen:
First, you need to not even be eligible for any kind of coverage sponsored by your employer.
Then your wife has to have enough profits to cover the premiums. If she doesn’t the only thing you will be able to deduct is the amount which brings her net profit to $0.
Assuming both of those things indeed occur, you should be able to include both of your medicare premiums in the Self-Employed Health Insurance Deduction on the 1040.
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?
The only thing you need to worry about with regards to the company plan is that you will no longer be eligible. There can be a plan in place, but once you lose eligibility to be in that class, then you’re good.
One important thing to keep in mind is that you have to wait until your eligibility and coverage actually lapse. A lot of companies will allow employees to remain on the plan until the new enrollment period/end of the year. If that applies to you, you will have to wait until you’re completely done with the coverage to have your wife start taking your insurance as part of the health insurance deduction.
Great! Thank you Eric for clearing that up, will be a tremendous help to us when that time comes.
You got it Howard, good luck!
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?
Hello Yolanda.
That line of reasoning is correct.
Only medicare premiums are allowed to be deducted by the self-employed spouse for the purpose of taking the Self-Employed Health Insurance Deduction.
If your business takes out the policy for him, and he is an employee of the business (actual employee not a 1099-MISC contractor) then you have a way to deduct his insurance premiums as a business expense.