Self-Employed Health Insurance Deductions: A Full Guide

Self-employed health insurance deductions are tax breaks that allow qualified self-employed individuals to subtract any premiums paid for health, dental, and long-term care insurance plans from their tax returns.

Understanding what deductions you can claim and how they work is crucial to ensuring proper tax filings and lowering your income tax. So, in today’s article, we’ll discuss everything you need to know about self-employed health insurance deductions and how you can claim them.

Let’s start!

Key Takeaways

• Self-employed health insurance deductions refer to the premiums paid for health insurance and other health-related expenses that can be subtracted from your tax return.
• Individuals who can claim self-employed health insurance deductions are those considered self-employed by the IRS, those without an existing health insurance plan, and business owners and entrepreneurs.
• The types of health-related expenses you can deduct include health insurance premiums, dental and vision care, and long-term care insurance.
• To claim self-employed health insurance deductions, you first need to calculate your total eligible premium payments and verify that these don’t exceed your net income. Then, you can fill out Form 1040, Schedule 1, and subtract the deduction from your gross income.

What Are Self-Employed Health Insurance Deductions?

Self-employed health insurance deductions allow eligible individuals to deduct any health-related expenses incurred during the year from their gross income. These include regular health premiums, dental and vision care, and long-term care insurance plans.

Unlike other health-related deductions, like medical expenses, which need to be filed on Form 1040, Schedule A, self-employment tax deductions can be claimed without having to itemize each expense and can cover the employee’s family as well.

Moreover, these deductions are only eligible for individuals without an existing health insurance plan for the year. Since self-employed health insurance deductions don’t have to be itemized, they are filed under Form 1040, Schedule 1, and can directly lower your taxable income.

Who is Eligible for Health Insurance Deductions?

Business owners, entrepreneurs, and freelancers without a health insurance plan from their employer are all eligible for self-employed health insurance deductions. However, there are still some rules and regulations for claiming these deductions.

Let’s see what they are:

Self-Employed Individuals

According to the IRS, self-employed individuals can include sole proprietors, freelancers, and independent contractors who work solely for themselves and, as such, are eligible for health insurance deductions.

That said, self-employed health insurance deduction rules state that these insurance plans must be established under the individual’s self-employment business and not under their employer. This means that freelancers with health insurance policies from their employer will no longer be able to claim this benefit.

Employees Without an Employer-Subsidized Health Plan

Every self-employed individual without a company-provided health plan can claim health insurance deductions on their tax return. However, this doesn’t just apply to insurance plans that are directly in your name.

For instance, you won’t be eligible for self-employed health insurance deductions if your spouse’s employer provides them with an insurance policy in which you are a registered dependent.

Business Owners and Entrepreneurs

By providing health insurance plans to their employees, business owners, and entrepreneurs qualify for health insurance write-offs since they can claim the contribution as a business expense.

However, keep in mind that there is a self-employed health insurance deduction limit, which applies to the income you earn from the business. If your net income is lower than your medical bills, you won’t be eligible for the deduction.

If your business falls into debt or does not earn any income for the year, you can’t claim any tax deductions either. Additionally, if you own and operate more than one business, you can’t combine their incomes just to qualify for the deduction.

Types of Expenses That Are Deductible

Now, let’s look at some of the self-employed health insurance deductions you can claim on your tax return if you meet the above-mentioned criteria:

#1. Health Insurance Premiums

Any health insurance premiums that cover the individual, their spouse, and their dependents are fully deductible from tax filings. This can include the professional fees of dentists, surgeons, and general medical practitioners. You can also claim self-employed health insurance deductions for hospital stays or nursing care facility expenses.

#2. Dental and Vision Care Insurance Premiums.

While dental and vision care expenses aren’t usually covered by standard health insurance policies, they qualify as deductible health care expenses for self-employed individuals.

Here’s a brief overview of the different expenses you can claim:

• Dental care. Self-employed individuals can claim tax breaks on dental care procedures such as tooth extractions, fillings, and dental surgeries.
• Vision care. Eligible individuals can claim vision care-related expenses, including the cost of eye exams, prescriptions, medical equipment, and the treatment of other eye conditions, from their tax returns.

#3. Long-Term Care Insurance

Self-employed health insurance deductions can also cover long-term care insurance plans but are subject to specific age limits.

The maximum deduction limits per individual in 2024 are as follows:

• $470 for ages 40 and younger
• $880 for ages 41 to 50
• $1,760 for ages 51 to 60
• $4,710 for ages 61 to 70
• $5,880 for ages 71 and older

How to Claim Self-Employed Health Insurance Deductions in 4 Easy Steps

If you want to claim self-employed health insurance deductions for the current taxable year, it’s crucial to familiarize yourself with the IRS health insurance deduction rules and follow the next steps:

#1. Calculate Total Eligible Premium Payments

The first step to enjoying health-related self-employed tax benefits is to calculate the total amount of premium payments you can claim. This includes any costs spent on you and your family that fall under the three deductible expenses we discussed above. You can refer to Form 7206 to determine which health insurance deductions you are eligible for.

#2. Verify That Expenses Don’t Exceed Self-Employment Income

Since your self-employed health insurance deductions are limited to your self-employment income, the next step is to confirm that your expenses don’t exceed your net income for the year. For instance, if you earned a total of $35,000 but spent $50,000 in health care premiums, then you will only be able to deduct $35,000.

#3. Fill Out Form 1040, Schedule 1

Once you know how much you can claim, you are ready to fill out Form 1040, Schedule 1, or the form for Additional Income and Adjustments to Income. All you have to do is input your business’ net income along with the total premiums you paid for the year.

#4. Subtract Deduction From Gross Income

Lastly, you can subtract your deduction directly from your gross income to determine how much you owe for the year. Self-employed health insurance deductions help reduce your adjusted gross income (AGI) and allow you to qualify for additional tax benefits.

For instance, if your gross income is $40,000 and you paid $10,000 for health insurance premiums, then your AGI will be $30,000.

4 Best Practices for Self-Employed Health Insurance Deductions

If you want to start claiming self-employed health insurance deductions, here are some of the best practices to keep in mind to maximize their benefit and ensure a smooth and hassle-free process:

#1. Keep Your Records Organized

In addition to maintaining a self-employment ledger, it’s important to keep organized records of all your health insurance payments, such as receipts or invoices, to ensure that you can accurately deduct your expenses.

Fortunately, you can use online tools like Paystub.org’s invoice generator to create detailed records of your transactions, which makes it easier to calculate your income and eligible deductions. This can also serve as proof of your income in case of an audit.

#2. Review Health Insurance Options Regularly

Health insurance premiums and coverage can change, so we recommend regularly reviewing your current plans to see if you are getting the best benefits possible while maintaining eligibility. For instance, if your business had a successful year, you may qualify for new health insurance options that allow you to lower costs while maximizing deductions.

#3. Check Other Health-Related Deductions

As we mentioned, health insurance premiums aren’t the only eligible self-employed health insurance deductions; medical expenses for doctor appointments and medical prescriptions can also be claimed.

So, before filing your Form 1040, make sure you check all possible health-related deductions to see if you qualify for them. For example, you may not know that Health Savings Account (HSA) contributions are tax-deductible, and you may be missing out on potential tax breaks.

#4. Hire a Professional

If you’re unsure of your deductions, it may be best to hire a professional to help with tax planning. Computing self-employed health insurance deductions can be confusing, and mistakenly claiming false deductions can lead to hefty fines.

Accountants and tax experts will help you comply with the IRS rules and identify additional opportunities for further deductions.

Final Thoughts

Self-employed health insurance deductions can help freelancers, independent contractors, and business owners offset the costs of health-related expenses while maximizing their tax benefits. Moreover, understanding how these deductions work and which ones you are eligible for is crucial when filing your taxes.

To help monitor your income and file taxes and insurance deductions accurately, it’s important to keep detailed records of your earnings. One way to do this is by utilizing a professional invoice generator like Paystub.org. Our tool provides standardized templates for pay stubs and invoices, helping you track your income and expenses so you can avoid potential filing errors.

Self-Employed Health Insurance Deductions FAQ

#1. Can I deduct health insurance premiums for my family?

Yes, you can deduct health insurance premiums for your family, including your spouse and dependents, as long as it doesn’t exceed your income for the year. Meanwhile, medical expenses for family members can be eligible for deductions if they don’t exceed 7.5% of your gross income.

#2. What if my self-employment income is negative?

If your self-employment income is negative, you can’t claim any health insurance deductions. This applies to both employees who didn’t earn a salary and business owners who incurred a loss in the current year.

#3. Is this deduction available if I itemize deductions?

Yes, self-employed health insurance deductions are available even if you itemize them, but you don’t need to. For other health-related expenses, you can refer to the IRS’ list of eligible medical expenses that you need to itemize on Form 1040, Schedule A.

#4. What documentation do I need to claim the deduction?

The documentation you need to claim self-employed health insurance deductions includes Form 1040, Form 1040-SR, or Form 1040-NR. Meanwhile, to help you determine the total amount you can claim, you can refer to Form 7206.