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.
Sending Kids to College
TurboTax can help you take advantage of tax breaks to ease the financial burden of sending kids to college, including tax credits, tuition deductions, tax-free savings and more.
Read MoreBrought to you byTurboTax.com
Inflation Reduction Act of 2022: What it Could Mean for You and Your Taxes
The Inflation Reduction Act passed the House of Representatives and is in route to be signed into law by the President. Check back with the TurboTax blog for more up to date information and to find out when the bill is signed into law and what it means to you.
Read MoreBrought to you byTurboTax.com
Form W-9 - What Is It and How Is It Used?
Form W-9 is a commonly used IRS form for providing necessary information to a person or company that will be making payments to another person or company. One of the most common situations is when someone works as an independent contractor for a business. When you are hired as a contractor for a business or beginning work as a freelancer, you may be asked to complete a W-9 and provide it to the business that will be paying you.
Read MoreBrought to you byTurboTax.com
What to Expect Tax-Wise from Your Summer Job
You won't know what to expect tax-wise from your summer job unless you consider factors other than how much you earn.
Read MoreBrought to you byTurboTax.com