Deducting health insurance premiums if you're self-employed

Stylish young business woman talking with her client in a creative workspace.
Stylish young business woman talking with her client in a creative workspace.

If you are self-employed, you may be eligible to deduct premiums that you pay for medical, dental and qualifying long-term care insurance coverage for yourself, your spouse and your dependents.

  • This health insurance write-off is entered on page 1 of Form 1040, which means you benefit whether or not you itemize your deductions.

  • Unlike an itemized deduction, this deduction treatment is beneficial because it lowers your adjusted gross income (AGI).

  • Having lower AGI can reduce the odds that you’ll be affected by unfavorable phase-out rules that can cut back or eliminate various tax breaks.

Keep in mind that this deduction treatment also means you can’t deduct the premiums when you calculate your self-employment tax liability.

Eligibility is determined month-by-month

You can only claim the health insurance premiums write-off for months when neither you nor your spouse were eligible to participate in an employer-subsidized health plan.

For example, if you were single and ineligible for any employer-provided health plan during the last six months of the year because you left your job and started your own business, you can claim the deduction for premiums you paid for coverage during that six-month period.

Earned income limitation

The deduction cannot exceed the earned income you collect from your business.

For example, if your self-employment activity is a sole proprietorship that generated a tax loss for the year, you’re not allowed to claim the deduction because the business didn't generate any positive earned income.

Partners and LLC members

Partners and LLC members who are treated as partners for tax purposes are considered to be self-employed.

  • If you fit into this category and directly pay your own health insurance premiums, you can claim the page 1 deduction.

  • If the partnership or LLC pays the premiums, special tax reporting rules apply to the partnership’s or LLC’s return, but you can still claim the deduction for premiums paid for your coverage.

Premiums paid to cover your employees

If your business has employees and you pay health insurance premiums for them, these amounts are deducted on the applicable tax form and line for employee benefit program expenses.

For example, if your business is a sole proprietorship, you deduct premiums paid to provide health coverage to employees on line 14 of Schedule C.

Limited deductions for long-term care insurance premiums

Here's what you can deduct this year for long-term care insurance premiums.

2018

Age 40 and younger

$420

Age 41 to 50

$780

Age 51 to 60

$1,560

Age 61 to 70

$4,160

Over age 70

$5,200

The bottom line

If you qualify, the deduction for self-employed health insurance premiums is a valuable tax break. With the rising cost of health insurance, a tax deduction can help you pay at least a portion of the premium cost. And that will help to keep you healthy—and happy—in 2018 and beyond.

If you’re self-employed, TurboTax Home & Business offers step-by-step guidance for handling all of your personal and business deductions.

Brought to you by TurboTax.com

Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.
Filing Your Taxes Late
What do you do if you can't meet the IRS filing deadline? Learn more about filing a tax extension, late payment and late filing penalties, and what to do if you can't pay your taxes.
Read MoreBrought to you byTurboTax.com
How to File an Amended Tax Return with the IRS
Did you make a mistake on your tax return or realize you missed out on a valuable tax deduction or credit? You can file an amended tax return to make the correction. Filing an amended tax return with the IRS is a straightforward process. This article includes step-by-step instructions for when and how to amend your tax return using Form 1040-X.
Read MoreBrought to you byTurboTax.com
Taxes 2021: 7 Upcoming Tax Law Changes
Tax Year 2021 will likely bring some surprises, but some of its changes are already planned. Here's what you need to know about some of the planned phase-outs, changes and inflation adjustments the IRS will present for taxes in 2021.
Read MoreBrought to you byTurboTax.com
Ways to Increase Your Tax Refund You Never Thought About
Laying the groundwork for a tax refund requires some simple tax planning, a little research and some forethought. Reviewing your tax status, consulting your spouse when filling out your W-4s and taking advantage of several tax credits can help you increase your tax refund. TurboTax also can help decide which credits can get you the biggest refund.
Read MoreBrought to you byTurboTax.com