Per Diem Rates from the U.S. General Services Administration
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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").
Health Insurance Deduction for the Self-Employed
If you're self-employed and your business has a net profit, beginning 2018, under the Tax Cuts and Jobs Act, you may deduct medical, health, and qualified long-term care insurance premiums for yourself, your spouse, and your dependents on Form 1040, Schedule 1. This is an above-the-line deduction, which means you don't have itemize your deductions to claim it.
The insurance can also cover your child who was under age 27 at the end of the year, even if the child was not your dependent.
A child includes your son, daughter, stepchild, adopted child, or foster child. A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.
Medicare Premiums
Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction.
Retirement Plans
Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction.
Claiming the Health Insurance Deduction
To claim the health insurance deduction one of the following statements must be true:
- You were self-employed and had a net profit on Schedule C, Schedule C-EZ, or Schedule F.
- You were a partner with net earnings from self-employment reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc., box 14, code A.
- You used one of the optional methods to figure your net earnings from self-employment on Schedule SE.
- You received wages from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement. If you are a more-then 2% S corporation shareholder and the S corporation has a health insurance plan, your health insurance deduction cannot be more than your wages from the S corporation.
Were You Eligible to Participate in an Employer Plan?
If 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.
If Health Insurance Premiums Exceed Net Profit
If you're self-employed, the health insurance deduction may not exceed the net profit from the business under which the health insurance premiums are paid.
For 2018 and beyond, if your health insurance premiums exceed net profit, deduct the amount of the premiums that are equal to your net profit on Form 1040, Schedule 1.
For example, if your health insurance premiums were $10,000 and your net profit was $6,000, you may only claim $6,000. However, the remaining $4,000 may not be entirely lost. If you itemize your deductions you may claim the remaining $4,000 on Schedule A as a medical expense deduction, subject to the 7.5% of adjusted gross income (AGI) limitaion (only the excess amount of total medical expenses that exceed 7.5% of AGI are deductible on Schedule A).
Self-employment Tax
When computing self-employment tax, do not reduce net earnings from self-employment by your health insurance deduction.
Net Loss
If you have a net loss, all of the premiums must be deducted on Schedule A along with your other medical expenses.
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.
Insurance Plan Must Be Established, or Considered to be Established, Under Your Business
Self-employed Individuals:
For self-employed individuals who file Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual.
Partners:
For partners, a policy can be either in the name of the partnership or in the name of the partner. A partner can either pay the premiums personally or the partnership can pay the premiums and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in the partner's gross income.
However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.
More-than-2% Shareholders of an S corporation:
For more-than-2% shareholders of an S corporation, a policy can be either in the name of the S corporation or in the name of the shareholder. The shareholder can either pay the premiums personally or the S corporation can pay the premiums and report the premium amounts on Form W-2 as wages and include the premiums in your gross wages.
However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 in box 1 as wages , otherwise, the insurance plan will not be considered to be established under your business.
Limited Liability Companies
An LLC can deduct the cost of obtaining group hospitalization and medical insurance for all employees who are not members of the LLC.
Restrictions:
An LLC member is ineligible to deduct the cost of health insurance for any month during the year the member is eligible to participate in any other employer provided health plan, such as a spouse's plan at his/her place of employment. It's irrelevant whether the LLC member actually takes advantage of the other health plan.
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're self-employed, the part that is deductible is included as an above-the-line deduction on Schedule 1 (Form 1040) along with your other medical insurance premiums.
Long-term Care Premiums for 2021
- Limit on premium allowed as medical expense
- Age 40 or under: $450
- Over 40 but not over 50: $850
- Over 50 but not over 60: $1,690
- Over 60 but not over 70: $4,520
- Over 70: $5,640
Make sure, if you're thinking about purchasing a long-term care insurance policy that it qualifies for the tax treatment explained here.
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 to expenses.
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.