Most business expenses are deductible to the business owner in some form or another. What’s unique about the topic of health insurance is that it isn’t exactly a business expense, but as a self-employed taxpayer, you may be able to deduct it anyway.
Who Is Eligible and Who Isn’t Eligible
If you’re self-employed and you are not eligible for coverage under a subsidized plan provided by your employer (if you have an employer) or your spouse’s employer, you can deduct certain health insurance premiums. In other words, if your spouse works somewhere that provides a subsidized insurance plan, you are not eligible for this deduction, even if you choose not to participate in the plan. Or, if your business is part-time, and you also have an employer, you aren’t eligible for this deduction if your employer provides a subsidized insurance plan under which you could receive coverage.
Where to Deduct Health Insurance Premiums
Now that you are aware of the different types of deductions available to you, your next question is of course, “What type of deduction is this?” The answer is that it isn’t a business deduction, but it is at least an above the line deduction. In other words, it isn’t going to save you any money on your self-employment tax. However, it is going to be beneficial regardless of whether you choose to itemize or to take the standard deduction.
What Premiums Can be Deducted
For the most part, any health insurance and dental insurance premiums paid for yourself, your spouse, or your dependents can be deducted (assuming you’re eligible in the first place). Also, you may be able to deduct premiums related to long-term care insurance (see below). In either case, your total deduction for health insurance premiums is limited to your income from your business.
Long-Term Care Insurance: Is it Deductible too?
In order to be able to deduct the premiums for long-term care insurance, the policy must be a “qualified long-term care insurance contract.” In other words, it must meet all the following requirements:
- It must be guaranteed renewable.
- It must not provide any cash surrender value or other money that can be borrowed or withdrawn from the plan.
- It must not pay for items that would be covered under Medicare, except when the contract simply provides a per diem amount of coverage without regard to expenses.
- It must provide that dividends and refunds (other than refunds from the death of the insured or from cancellation of the contract) may be used only to reduce future premiums or increase future benefits.
- It must only provide coverage of qualified long-term care services. (The primary requirements for qualified long-term care services are that they must be required by a chronically ill individual and prescribed by a licensed health care practitioner.)
Also, the amount that you can deduct for long-term care premiums is limited to the lesser of the following for each person covered:
1. The total amount paid for that person for the entire year.
2. An amount based upon the person’s age.
- 40 or younger: $280
- 41-50: $530
- 51-60: $1,060
- 61-70: $2,830
- 70 and up: $3,530
In Summary- If you are not eligible for coverage under a subsidized plan from either your own or your spouse’s employer, you are eligible for an above the line deduction for health insurance and dental insurance premiums you pay for yourself, your spouse, and your dependents.
- You may also be able to deduct premiums paid for a long-term care insurance policy if the policy meets several specific requirements (outlined above).
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