Self-Employed Health Insurance Deduction
If you were self-employed during 2012 you can deduct
100% of the premiums paid for medical and dental insurance, and
qualified long-term care insurance for yourself, your spouse, and your
Where to Deduct Health Insurance Premiums
Self-employed persons claim the health insurance deduction
directly on Line 29 of Form 1040, not Schedule C.
It's an above-the-line deduction, which means, even if
you don't itemize your deductions you still
get to claim this deduction.
Health insurance premiums include premiums paid for:
- Medical and dental insurance for yourself, your spouse, and your
- Qualified long-term care insurance for yourself, your spouse,
and your dependents.
Claim the Health Insurance Deduction?
The following may claim the health insurance deduction:
- Sole proprietors
- General partners
- Limited partners receiving guaranteed payments
- If you received wages from an
in which you were a
Note that LLC members are treated as follows:
- Single-member LLC:
- The LLC is a disregarded entity and is automatically treated
as a sole proprietorship (the default treatment) for federal income tax purposes unless
an election is made to treat the LLC as a C corporation or S corporation.
- If treated as a sole proprietorship, the LLC member files
Schedule C (or F for farming).
- If a C or S corporation election is made, Form 1120 or
1120-S, respectively, is filed and the LLC member is treated as an
employee of the business and employment tax rules must be
- Multiple-member LLC:
- A multiple-member LLC is automatically treated as a
partnership for federal income tax purposes unless an election
is made to treat the LLC as a C or S corporation.
- If treated as a partnership, Form 1065 is filed and each
member is considered self-employed.
- If a C or S corporation election is made, Form 1120 or
1120-S, respectively, is filed and each member is treated as an
employee of the business just like any other employee (the same
employment tax rules that apply to regular employees, apply to
Seven Points to Keep in Mind About Deducting Health Insurance Premiums
- The 100% health insurance deduction is an above-the-line deduction.
- An above-the-line deduction is a deduction you may claim
even if you don't itemize your deductions.
- Above-the-line deductions are included in the calculation of
adjusted gross income.
- If you don't qualify to claim the 100% health insurance
deduction as an above-the-line deduction, you may claim the
health insurance premiums you paid on Schedule A as
an itemized deduction.
- If you are self-employed (sole proprietor or general
partner), you deduct health insurance
premiums on Line 29 of Form 1040.
- Purchasing a policy:
- Sole proprietorship:
- If you're a sole proprietor, you may purchase a policy
in your own name or the name of the business.
- S corporation:
- S corporation shareholders deduct the health insurance
premiums on Form 1040, line 29.
- If you're a more-than-2% shareholder of an
S corporation, the plan must be "established" by the S corporation
for you to qualify for the deduction.
- Note: If you don't qualify for an
above-the-line deduction for premiums you paid out of your
pocket, you can claim the premiums you paid
on Schedule A as an itemized deduction).
- To qualify for the above-the-line deduction (Form 1040, line
29), the plan must be "established" by the S corporation.
- The plan is considered established by the S corporation even if the plan is in your own name
- The corporation pays the premiums to the insurance company OR reimburses you for the premiums you paid to the insurance
- The premiums are reported as wages on your Form W-2 and
included on your individual income tax return.
How an S corporation handles health insurance premiums and the
deduction rules for shareholder-employees.
- Claiming the deduction:
- The health insurance deduction may not exceed
the net profit
from the business under which the health insurance premiums are
paid, less deductions claimed for 50% of self-employment tax and
Keogh, SEP, or SIMPLE retirement plan contributions.
- More than one business:
- If you have more than one unincorporated business, you
cannot add up the profits from each business and use that total
to determine your net income ceiling.
- Only the net income for the business for which the plan is
established is considered.
- More-than-2% S corporation shareholder:
- If you are a more-then 2% S corporation shareholder and the
S corporation has a health insurance plan, your health insurance
cannot be more than your wages from the
- If eligible to participate in an employer plan:
- If in 2011 you were eligible to participate in any
employer-subsidized plan (including your spouse's) during any
month, you may not claim the deduction for
any of those months.
- Self-employment tax:
- When computing self-employment tax, do NOT reduce net earnings from self-employment by your health insurance deduction.
An individual who is not self-employed
(or not a more-than-2% shareholder of an S corporation) does not get to deduct health insurance premiums as an above-the-line deduction on Form 1040, Line 29.
Instead, he/she must deduct health insurance premiums along with
other medical expenses as an itemized deduction on Schedule A. To get a tax benefit, medical expenses on Schedule A must exceed 7.5%
of adjusted gross income.
However, as a self-employed person, you get to deduct the entire health insurance premiums even if you don't itemize your
deductions. You simply claim the deduction Line 29 of Form 1040.
Other Medical Expenses:
If you're eligible to claim an above-the -line deduction for health
insurance premiums and have other medical expenses, such as co-payments
for office visits to doctors,
prescriptions, etc. of course you may claim them on Schedule A if you itemize your
Tip: Although medical expenses must exceed 7.5% of adjusted
gross income for federal tax purposes, this may not apply for state tax
purposes. For example, in Arizona, you can
deduct 100% of medical expenses. Check with your
Claim the Health Insurance Deduction
Claim the deduction on Line 29, Form 1040.
Claim 100% as an above-the-line deduction.
The policy may be purchased in your own name or the name of the
Sole shareholder-employee in an S corporation:
According to the IRS, the above-the-line deduction
is allowed only if the policy was purchased in the corporation's name.
Qualified Long-Term Care Insurance Policy for Self-Employed Persons
Part of the premium of a qualified long-term care insurance policy is
deductible depending on your age at the END OF THE YEAR.
If you are self-employed, the part that is deductible is included as
an above-the-line deduction on Line 29, Form
1040 along with your other medical insurance
For 2011, the maximum deductible premium for each
person covered under a qualified long-term care policy is:
- Limit on premium allowed as medical expense
- Age 40 or under: $340
- Over 40 but not over 50: $640
- Over 50 but not over 60: $1,270
- Over 70: $4,240
Make sure, if you are thinking about purchasing a long-term
care insurance policy that it qualifies for the tax treatment
For example, the contract must:
- Provide only for coverage of long-term care services.
- Be guaranteed renewable.
- Not provide for a cash surrender value.
- Not provide that money can be assigned, pledged, or borrowed.
- Not reimburse expenses covered by Medicare UNLESS
Medicare is a secondary payer OR
the contract makes per diem payments without regard
Generally, you can exclude benefits (other than dividends) received
under a qualified long-term care insurance contract from income.
However, if you receive per diem payments (payments
made without regard to actual expenses), you are limited
to the amount you can exclude from income.
Form 1099-LTC is issued to recipients of payments
under a long-term care insurance contract.
Box 3, of Form 1099-LTC, should indicate whether the
payments were on a per diem basis or reimbursements of actual
long-term care expenses.
You use Form 8853 to report per diem payments and
reimbursements and to determine if any of the per diem
payments are taxable.