What is a self-employed health insurance deduction?
A self-employed health insurance deduction is a tax deduction that self-employed individuals can take for the cost of health insurance premiums for themselves, their spouses, and their dependents. This deduction is intended to help self-employed individuals offset the cost of health insurance, which can be a significant expense for those who do not have access to employer-sponsored health insurance plans. Here are a few general criteria to keep in mind:
- You are self-employed
- To qualify for the self-employed health insurance deduction, an individual must be self-employed (also known as freelancers, independent contractors, gig workers, or sole proprietors) and have earned income from their business. The health insurance must be purchased in the individual's name and not in the name of the business. The self-employed health insurance deduction is taken as an above-the-line deduction, which means it can be taken regardless of whether the individual itemizes their deductions or takes the standard deduction.
- You aren’t otherwise eligible for insurance
- Self-employed individuals who have access to a spouse's employer-sponsored health plan or are eligible for Medicare or Medicaid will not be able to claim the deduction. It's also worth noting that self-employed individuals who participate in a group health plan offered by a professional employer organization (PEO) or a multiple employer welfare arrangement (MEWA) may not be eligible for this deduction.
What expenses can be deducted?
Self-employed individuals can deduct certain medical expenses as itemized deductions on Schedule A of Form 1040 if the expenses exceed a certain percentage of their adjusted gross income (AGI). Some of the medical expenses that may be deductible for the self-employed include:
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- Medical, dental, and vision insurance premiums: Self-employed individuals can deduct the cost of health, dental, and vision insurance premiums for themselves, their spouse, and their dependents.
- Medical and dental treatments, surgeries and hospital stays: Self-employed individuals can deduct the cost of medical and dental treatments, surgeries, and hospital stays, as well as the cost of prescription drugs.
- Long-term care insurance: Self-employed individuals can deduct the cost of long-term care insurance premiums, up to certain limits.
- Medical mileage: Self-employed individuals can deduct the cost of transportation for medical care, including the cost of gas or parking fees.
- Home improvements: Self-employed individuals can deduct the cost of certain home improvements made for medical reasons, such as the installation of wheelchair ramps or handrails.
- Medical conferences: Self-employed individuals can deduct the cost of attending medical conferences, as long as the conference is directly related to a chronic medical condition from which the individual or the individual's dependent suffers.
- It's important to note that some of these deductions are subject to certain limits, such as the overall limit for unreimbursed medical expenses, which is 7.5% of your adjusted gross income for the tax year 2021, and will be back to 10% for tax year 2022. Additionally, self-employed individuals should keep accurate records of all medical expenses, including receipts, invoices, and mileage log to support their deductions. It's also recommended to consult with a tax professional to ensure that you are taking advantage of all the deductions and credits available to you.
High insurance premiums cause thousands of those who are self-employed to remain uninsured. Understanding the deductions that are available and becoming a member of the USBA gives you access to free quotes from licensed brokers, who can quickly build a customized plan that meets the needs of you and your family.
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