With the high cost of healthcare coverage, self-employed taxpayers may find relief by taking advantage of tax deductions for health insurance premiums.

Self-employed taxpayers include sole proprietors, members of LLCs, partners, and owners of S-corporations.

Who is not eligible?

You may not take the deduction if you were eligible to participate in an employer-subsidized plan. This includes plans sponsored by your spouse’s employer. A subsidized plan is one where the employer pays a portion of the premium.

However, eligibility is determined on a month-by month basis, so even if you were covered by an employer-subsidized plan for part of the year, you may take the deduction for the remainder of the year. For example, someone who is an employee for the first six months of the year and then becomes a self-employed consultant for the final six months of the year can deduct their health insurance premiums paid from July to December.

What is included in the deduction?

The deduction includes premiums for insurance coverage for the self-employed individual, their spouse, and their dependents. While medical insurance premiums are typically the largest dollar amount, premiums for dental insurance and long-term care insurance may also be deductible. And even if you don’t itemize other deductions, you can still deduct self-employed health insurance if you meet the requirements.

Importantly, the amount of the deduction cannot exceed the earned income you collect from your business. But if you have sufficient profit, you can deduct the full amount of the premiums.

Special reporting requirements govern this deduction for S-corp shareholders who own more than 2% of the company, so we recommend talking with a tax professional. If you have questions about this deduction or want to explore other tax-saving opportunities, call our office at 480-392-6801 to schedule your tax planning meeting.