Being self-employed provides plenty of freedom and flexibility when it comes to setting your own schedule and choosing the jobs you wish to take on. However, being self-employed also comes with a few challenges, one of which is seeking out self-employed health insurance policies. Because those who are self-employed are not offered individual health insurance options from their employer (as they are their own boss), seeking health insurance is necessary. With self-employed health insurance today, however, it is also possible to find a self-employed health insurance deduction that can provide you with tax relief at the end of each fiscal year.
What is a self-employed health insurance deduction?
A self-employment health insurance deduction is extremely beneficial to those who are self-employed and do not qualify for any other type of health insurance. When you purchase your own health insurance as a self-employed professional, you can deduct 100% of your health insurance premiums when filing taxes.
Those who are self-employed already understand the requirements of paying additional self-employment taxes along with state and federal taxes, which is why a self-employed medical expenses tax deduction is so valuable. You can use your tax deduction to help cover the cost of the premiums for yourself and your dependents. You can generally deduct qualifying medical and dental expenses that are more than a certain percentage of your adjusted gross income. If all your medical costs add up to more than 7.5% of your adjusted gross income, you can deduct that total cost from your taxes.
Eligibility criteria for the self-employed health insurance deduction
If you are self-employed or if you own your own small business, a self-employed health insurance deduction may apply to you. In order to qualify for a self-employed health insurance deductible, you must meet the following requirements:
- Have no other health insurance options: In order to qualify for the self-employed health insurance deduction, you must not have any other available health insurance policies and you must not have any other policies that are currently being offered to you by an existing employer.
- Generate an income: As someone who is self-employed, you must be able to prove that you are generating an income, whether you are doing so independently or if you are running and managing a business operation. In order to qualify for a self-employed health insurance deductible, your business entity must generate a net income that is not less than the total medical and insurance expenses you need to cover.
What medical expenses can be deducted?
Before seeking the health insurance policy and self-employed health insurance deductible that is right for you, it is important to familiarize yourself with some of the medical expenses that can be deducted. Some medical expenses that can be deducted with a self-employed health insurance deduction include, but are not limited to:
- Physician fees: Most often, medical expenses that include visits to general practitioners, psychologists, chiropractors, psychiatrists, surgeons, and dentists are covered. With some policies, it may be possible to visit alternative medical practitioners, depending on the available practitioners with your coverage.
- Inpatient care: If you require inpatient hospital care or if you spend any length of time at a nursing home, the entire cost of your stay can be deducted.
- Rehabilitation facilities and programs: For those who require rehabilitation programs (inpatient or outpatient), all costs and fees can be deducted.
- Dental work: Dental work, cavity fillings, tooth removals, surgeries, and even false teeth can all be deducted by those who qualify for a self-employed health insurance deduction.
- Optometry: Eye exams, prescriptions, contact lenses, and other eye-related health issues and medical devices are typically covered in terms of deductibles for those who qualify for the self-employed health insurance deductible.
- Weight-loss programs: Many weight-loss programs along with other healthcare programs designed to improve one’s overall health can be deducted.
- Transportation: If you require transportation to various medical facilities for check-ups, tests, prescription refills, therapy, and other healthcare-related activities, you can also deduct the cost of the transportation required year-round.
- Other necessities: From insulin to wheelchairs, hearing aids, and crutches, there are many other necessities that are also covered for anyone who qualifies for a self-employment health insurance deduction today.
Calculating the self-employed health insurance deduction
Navigating the intricacies of tax deductions can be daunting for self-employed individuals, especially when it comes to health insurance. In this section, we’ll break down the process of calculating the self-employed health insurance deduction, offering clear guidance to help maximize tax savings while ensuring compliance with IRS regulations.
How to calculate the deduction
Calculating the deduction for self-employed health insurance requires attention to detail but can be manageable with the right guidance. To begin, determine your total annual health insurance premiums paid for coverage that qualifies under the IRS rules. Include premiums for medical, dental, and long-term care coverage. Once you have this figure, you’ll need to calculate the deduction based on your net profit from self-employment. This involves subtracting allowable business expenses from your total business income. The deduction is generally limited to the amount of your net profit, and any excess premiums cannot be deducted. Be sure to consult with a tax professional or utilize tax software to ensure accuracy and compliance with IRS regulations. By understanding the process and staying organized, you can effectively claim the deduction and maximize your tax savings as a self-employed individual.
Limitations and maximum deduction amounts
When it comes to claiming deductions for self-employed health insurance, there are certain limitations and maximum deduction amounts to consider. The deduction you can claim is generally limited to your net profit from self-employment. This means that if your net profit is less than the total amount of your health insurance premiums, you may not be able to deduct the full amount. Additionally, the deduction cannot exceed your net earnings from self-employment.
For example, if your net profit from self-employment is $50,000 and you paid $6,000 in health insurance premiums for the year, your deduction would be limited to $50,000, not the full $6,000 in premiums.
Furthermore, the deduction for self-employed health insurance is subject to certain maximum limits. The deduction cannot exceed your earned income from self-employment, or the income you earn from your business minus any allowable business expenses.
It’s important to note that the rules and limitations surrounding self-employed health insurance deductions can be complex, and they may vary depending on your specific circ*mstances. It’s advisable to consult with a tax professional or utilize tax software to ensure you accurately calculate and claim the maximum deduction allowed by the IRS. By understanding these limitations, you can effectively manage your tax obligations and optimize your deductions as a self-employed individual.
Examples of deduction calculations for different scenarios
Calculating deductions for self-employed health insurance can vary based on individual circ*mstances. Let’s break down a few examples to illustrate how the deduction might be calculated in different scenarios.
Scenario 1: John is a freelance graphic designer and has a net profit from self-employment of $40,000 for the year. He paid $5,000 in health insurance premiums. Since his net profit is less than his health insurance premiums, he can only deduct up to $40,000, the amount of his net profit.
Scenario 2: Emily is a freelance writer with a net profit from self-employment of $60,000. She paid $7,000 in health insurance premiums. Since her net profit exceeds her health insurance premiums, she can deduct the full $7,000 in premiums.
Scenario 3: David runs a small consulting business and has a net profit from self-employment of $80,000. He paid $9,000 in health insurance premiums. However, David’s deduction is limited to $80,000, not the full $9,000 in premiums, because his net profit sets the maximum limit for the deduction.
These examples demonstrate how the deduction for self-employed health insurance can vary based on income and premium costs. It’s essential for self-employed individuals to carefully calculate their deductions to ensure compliance with IRS regulations and maximize their tax benefits. Consulting with a tax professional can provide personalized guidance tailored to individual circ*mstances, helping individuals make informed decisions about their deductions.
How to claim your health insurance deductible
Whether you are in the market for short-term health insurance or long-term insurance as someone who is self-employed, understanding how health insurance deductibles work is essential. A health insurance deductible is the amount of money that is required upfront from a policy holder before an insurance company starts to provide coverage.
For example, if an individual’s deductible is $1,500, they will be required to pay $1,500 for medical services they require before their current insurance plan begins providing coverage and financial assistance. Once your insurance policy’s deductible has been paid in full (for each calendar year), you will then only be responsible for covering coinsurance or copay fees, depending on your current insurance policy.
FAQs about the self-employed health insurance deduction
Are there instances when an individual health insurance plan may not be tax deductible?
There are some situations when your individual health insurance plan may not be tax deductible, and it’s important to be aware of these situations so that you can be sure to choose the right plan for your needs. Some of these instances include:
- If you bought an individual or family plan from an Affordable Care Act (ACA) health insurance exchange, and got an advanced premium tax credit. (You may be able to deduct the portion of the premium that you paid out-of-pocket).
- If you paid for a plan with pre-taxed money, typically it cannot be deducted from your taxes (since you already got a tax benefit by paying with pre-tax dollars).
What deductions do I qualify for if I’m self-employed?
Being self-employed has its ups and downs—but a huge benefit to working for yourself is that there might be some self-employed health insurance deductions that apply to you. These deductions and tax breaks are meant to help those who have to pay for their own health insurance, so make sure to educate yourself on what’s available to you. Read on to see if you might qualify for the self-employed health insurance deduction, and which types of policies are tax deductible.
If you are insuring yourself with a medical, dental, or long-term care plan, then there might be an Internal Revenue Service (IRS) tax deduction that applies to you. You can use it to help cover the cost of the premiums for yourself and your dependents.
You can generally deduct qualifying medical and dental expenses that are more than a certain percentage of your adjusted gross income. This percentage is 7.5% of your adjusted gross income in 2017 and 2018, and scheduled to be 10% in later years.
Which plans qualify for the self-employed health insurance deduction?
If you are self-employed and have a net profit for the year, you are on the road to qualifying for a self-employed medical tax deduction for your health insurance. But it’s important to know if the plan you are currently enrolled in or are planning to enroll in also qualifies for the self-employed health insurance deduction. Here are some examples of plans and services that generally qualify for self-employed health insurance tax deductions:
- If you pay for your own premiums on a plan you bought from an insurance company, insurance broker, or your state’s health insurance exchange, then this policy may qualify for the tax deduction.
- If all your medical costs such as deductibles, copayments, and coinsurance add up to more than 10% of your income (or 7.5% in 2017 or 2018), you can most likely deduct that total cost from your taxes.
You can also choose to itemize your deductions, in which case (depending on your income) you may be able to deduct medical expenses such as:
- Prescription drug costs
- Cost-sharing fees (like copayments) for doctors, dentists, surgeons, chiropractors, psychologists, psychiatrists, and sometimes nontraditional practitioners
Visit irs.gov to see more medical expenses that might be deductible on your taxes.
Are there any plans that do not qualify for the self-employed health insurance deduction?
Even if you do qualify as a self-employed individual, and you have health insurance, there are still some plans that the self-employed health insurance deduction might not apply to. Here are some instances where your individual health insurance plan may not be tax deductible:
- If you bought an individual or family plan from an Affordable Care Act (ACA) health insurance exchange, and got an advanced premium tax credit. (You may be able to deduct the portion of the premium that you paid out-of-pocket).
- If you paid for a plan with pre-taxed money, typically it cannot be deducted from your taxes (since you already got a tax benefit by paying with pre-tax dollars).
What the self-employed health insurance deduction could mean for you
If you are self-employed and uninsured because of the high cost of insurance, hopefully knowing about the self-employed health insurance deduction may encourage you to buy a plan. Working with eHealth will give you access to free quotes and licensed brokers. If you already have insurance and you are a self-employed individual with a net income, you may be able to take advantage of the self-employed medical tax deductions available to you.
This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.
