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Self-employed health insurance deduction

The tax code provides various health insurance tax breaks for entrepreneurs

Self-employment and entrepreneurship are a dream for many people, and Obamacare has made that option easier to pursue, thanks to guaranteed-issue coverage, premium subsidies, and Medicaid expansion. For entrepreneurs who don’t have access to a spouse’s group health insurance plan, being self-employed usually means purchasing a policy in the individual health insurance market.

Obamacare subsidy calculator *

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Add ages of other family members to be insured.

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Include yourself, your spouse, and children claimed as dependents on your taxes.

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Modified Adjusted Gross Income (MAGI)

For most taxpayers, your MAGI is close to AGI (Line 7 of your Form 1040 in 2018, and Line 8b in 2019).

* This tool provides ACA premium subsidy estimates based on your household income. healthinsurance.org does not collect or store any personal information from individuals using our subsidy calculator.

Estimated annual subsidy

Provide information above to get an estimate.

Prior to 2014, self-employed people had to pay the full premium for an individual policy. But thanks to the ACA’s premium tax credits, many self-employed Americans are now getting help paying for their coverage. And those premium tax credits have been enhanced by the American Rescue Plan, so they’re larger and more widely available than they used to be.

If you’re self-employed and need to purchase your own health coverage, you can do so during the annual open enrollment period. In most states, this window runs from November 1 to January 15, although some states have different deadlines. The open enrollment period applies both on-exchange and off-exchange, but premium tax credits are only available on-exchange. There are also special enrollment periods linked to various qualifying life events, which allow a person to enroll outside of the annual open enrollment window.

In addition to the premium tax credits, there are other ways that the self-employed can use the tax code to save a few dollars when it comes to healthcare. There are several deductions and tax credits that self-employed people can utilize (always consult with a tax advisor before making decisions about your own finances):

Is there a health insurance deduction for the self-employed?

If you buy your own health insurance, you should definitely know about the long-standing health insurance premium deduction for the self-employed.

Congress implemented a 25% deduction for self-employed health insurance premiums in 1987 and made it permanent in 1994. The self-employed received even better news in 2003 when premiums became 100% deductible.


The deduction – which you’ll find on Line 17 of Schedule 1 (attached to your Form 1040) – allows self-employed people to reduce their adjusted gross income by the amount they pay in health insurance premiums during a given year. You’ll find the deduction on your personal income tax form, and you can file for it if you were self-employed and showed a profit for the year.

If you’re also eligible for a premium tax credit (premium subsidy), you can only deduct the part of the premiums you pay yourself. That can get into some circular math, but there are two methods that the IRS will let you use to determine your deduction and your tax credit.

You can’t take the self-employed premium deduction if you were eligible for group insurance from your spouse’s employer (or your own employer, if you have another job in addition to your self-employment). That includes eligibility for reimbursements via a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).


The ACA and more-than-2% S-corp shareholders

Since 2008, more-than-2% shareholders of an S-corp have been allowed to buy individual health insurance in their own name, and then get reimbursed by the S-corp.  The premiums were included on the shareholder’s W2, and then the shareholder was allowed to deduct the premiums on the first page of Form 1040, resulting in a lower AGI (see example 4 on page 4 of the IRS regulation from 2008).

But the ACA’s ban on employers reimbursing employees for individual health insurance premiums seemed to run counter to this provision, depending on how many S-corp shareholders were involved. This explanation from the IRS (updated December 2014) explains that a shareholder who is the sole corporate employee in an S-corp may continue to be reimbursed from the S-corp for individual health insurance (and this is clarified in Notice 2015-17, described in more detail below).

But until February 2015, the IRS had not directly addressed the issue of multiple more-than-2% shareholders, and the concern was that if there was more than one 2% shareholder, the corporation could run afoul of the market reforms in the ACA and be subject to significant penalties ($100 per day, per reimbursed employee).

At the time, most accountants—and the IRS attorney I spoke with in January 2015—agreed that if there were multiple shareholders or employees (including spouses), it was best to err on the side of caution and not get reimbursed by the S-corp if the shareholders were covered by individual/family (ie, non-group) health insurance.

In February 2015 however, the IRS released Notice 2015-17, and it was very good news for more-than-2% S-corp shareholders, as well as any other small business subject to the market reforms that prohibit the reimbursement of individual insurance premiums. Several provisions in Notice 2015-17 are applicable if you’re self-employed:

  • S-corps can continue to reimburse individual market premiums for their more-than-2% shareholders, until if and when the IRS releases further guidance on this issue (under the terms of Notice 2015-17, however, if an S-corp has employees who are not more-than-2% shareholders, those employees cannot be reimbursed for individual health insurance). As of early 2022, the IRS website confirms that Notice 2008-1 was still applicable as far as the tax treatment of health insurance for more-than-2% shareholders. The page notes that the IRS is still “contemplating publication of additional guidance on the application of the market reforms to a 2-percent shareholder-employee healthcare arrangement,” but clarifies that no additional guidance has yet been published.
  • If a shareholder has an individual plan that covers a spouse and the spouse is also employed by the corporation, the reimbursement arrangement is treated as if there is just one covered employee — thus the market reforms that would have prohibited reimbursement of premiums do not apply. This is particularly good news for mom-and-pop shops that have two shareholders who are married to each other; if they have a single individual health insurance policy, they can continue to have the corporation reimburse their premiums, and then deduct them on their 1040 per Notice 2008-1. This is particularly beneficial given that the ACA generally prevents a business with only two employees who are married to each other from obtaining a group health insurance plan. States have some flexibility on this, but if you’re in a state where your only option is an individual market plan, the IRS rule allowing spouses to be considered one covered employee allows the self-employed couple the option to deduct their premiums if they own an S-Corp.

In the years since 2015, there have been some rule changes regarding employers reimbursing employees for individual market premiums. When the ACA was first implemented, the federal government took a hard-line approach (as noted above) and prohibited any form of employer reimbursements for individual market insurance premiums. But the 21st Century Cures Act brought QSEHRAs into being, allowing small employers to reimburse employees for individual health insurance premiums starting in 2017. And then the Trump administration further expanded the rules, allowing ICHRAs to exist as of 2020.

But the rules described above for more-than-2% shareholders of an S-corp are even easier. The S-corp isn’t required to establish a QSEHRA or ICHRA. It can simply reimburse the shareholder for some or all of the cost of the individual market health plan, and then include the reimbursement amount in the shareholder’s W2 income (so if the shareholder earns a W2 wage of $50,000 and also receives $5,000 in health insurance premium reimbursements, their income reported in W2 Box 1 would be $55,000).

The shareholder can then deduct that amount using the self-employed health insurance deduction when they file their 1040 (so in the example above, they’d receive $55,000 in compensation from the S-corp, but they would only pay federal income tax on $50,000 of it). The self-employed health insurance deduction is taken “above the line,” which means it’s deducted before AGI is calculated, resulting in a lower AGI (in contrast, itemized deductions are taken after AGI is calculated), and thus also a lower ACA-specific MAGI.

HSAs allow insureds to pay for medical expenses with pre-tax dollars

Although being self-employed means that there’s no employer footing the bill for health insurance, it also gives entrepreneurs a lot of flexibility in terms of what type of health insurance they purchase. One popular option is an HSA-qualified high deductible health plan (HDHP).

Although some people have expressed concerns that market reforms under the ACA would be incompatible with HSAs, that has not been the case, and HSA-qualified plans are still a popular choice in the individual market.

Coverage under an HDHP makes the insured eligible to open an HSA and make pre-tax contributions that can be used later to pay for medical expenses. For 2022, the HSA contribution limits are $3,650 for people who have individual coverage under an HDHP, and $7,300 for those who have family coverage (two or more people) under an HDHP. In 2021, those limits were $3,600 and $7,200, respectively. And contributions can be made up until the tax-filing deadline, so the deadline for making 2021 HSA contributions is April 18, 2022 (the deadline is normally April 15, but holidays and weekends sometimes result in a slightly later deadline).

As is the case with the self-employed health insurance deduction, HSA contributions are deducted “above the line” on the 1040, which means the deduction is available to filers regardless of whether they itemize deductions. And there are no income limits in terms of who can contribute to an HSA — anyone who has an HSA-qualified HDHP (and meets the rest of the eligibility requirements set by the IRS) can contribute to an HSA with pre-tax money.

Although the money in an HSA can be withdrawn without penalties or taxes to pay for qualified medical expenses, some insureds choose to treat their HSAs as secondary retirement accounts, with tax implications similar to traditional IRAs: contributions are tax-deductible and distributions during retirement are taxed as income, assuming you’re using the money for something other than qualified medical expenses.

Do ACA tax credits make health insurance more affordable for the self-employed?

Thanks to the ACA, federal tax credits (subsidies) – obtained via the exchanges – are helping many families subsidize the purchase of individual health insurance. The tax credits are great for the self-employed, who had to foot the entire bill for their health insurance prior to 2014. Employees who get employer-sponsored health insurance typically enjoy a substantial subsidy in the form of pre-tax premiums and employer contributions to the premium. The ACA makes similar subsidies available for many self-employed people, and the American Rescue Plan has made those subsidies larger and more widely available.

The tax credits are available to households with incomes of at least 100% of the federal poverty level (FPL), as long as the enrollees do not have access to Medicaid or employer-sponsored health insurance that is considered affordable (and as long as the unsubsidized cost of coverage is above the level that the IRS considers affordable).

From 2014 through 2020, there was an income cap of 400% of the poverty level, above which subsidies were not available. But the American Rescue Plan eliminated that income cap for 2021 and 2022, temporarily fixing the “subsidy cliff.” Congress may choose to extend those subsidy enhancements past the end of 2022 (the Build Back Better Act would extend them through 2025, but it stalled in the Senate after passing the House; a more narrowly focused bill that addresses the subsidy enhancements on their own is more likely to pass in the Senate).

Even before the American Rescue Plan eliminated the subsidy cliff and made subsidies larger, most exchange enrollees received substantial subsidies that offset the majority of their premiums. As of early 2021 (ie, pre-ARP), 86% of exchange enrollees qualified for premium tax credits (subsidies) that averaged $486/month (versus average full-price health insurance premiums of about $575 per month; premium subsidies covered most of the premium for most enrollees, and that’s even more true now that the ARP has been implemented). For 2022, the average subsidy amount grew to $505/month, and 89% of enrollees were receiving a subsidy.

The tax credits can be paid directly to health insurance carriers on a monthly basis to reduce the amount that insureds have to pay for their coverage, which is the most popular option. But it’s not the only choice: people can opt to pay full price for a plan purchased through the exchange, and then claim the tax credit in full on their tax returns.

For eligible self-employed people, the tax credits make individual health insurance significantly more affordable than it would otherwise be. And since the ACA also did away with medical underwriting in the individual health insurance market, people who avoided entrepreneurship in the past because of pre-existing health conditions can now become self-employed without having to worry about being ineligible to purchase health insurance.

Can the self-employed deduct medical expenses?

If you face high medical bills and itemize your deductions, you might be able to deduct some of your medical expenses. The deduction – found on Schedule A of your income tax return — covers a wide range of medical expenses, and also includes premiums you pay for health insurance (including Medicare) or qualified long-term care.

You can’t double deduct, though — if you deduct your health insurance premiums under the self-employed health insurance deduction explained above, you can’t include them in your itemized medical expenses. And you also can’t deduct any portion of your premium that’s covered by the premium tax credit; only the portion you pay yourself can be deducted

And you can only deduct expenses in excess of 7.5% of your adjusted gross. This is the threshold that was in effect through 2012, but the ACA increased the threshold to 10%, meaning that people could only deduct medical expenses that exceeded 10% of their income. However, the Tax Cuts and Jobs Act that was enacted in December 2017 contained a provision that temporarily reset the threshold to 7.5%, for 2017 and 2018. And Section 103 of the Further Consolidated Appropriations Act, 2020, enacted in December 2019, kept that lower threshold in place for tax years 2019 and 2020. Then the Consolidated Appropriations Act, 2021 (Title I, Section 101) permanently reset the threshold at 7.5%, making it easier for tax filers to continue to qualify for this deduction.

Spending 7.5% of your income on medical costs can be a hard target to hit unless you’re dealing with a significant illness or injury (and keep in mind that you can only deduct the portion of your expenses that exceed that threshold). Still, it’s one more good reason to keep track of your medical bills and health insurance premiums – just in case.


Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

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tony Russo
tony Russo
2 years ago

If a spouse pays an employer xx amount of dollars for health insurance for the family, can the other spouse who is self-employed deduct those payments on his self-employment insurance premiums “above the line”?

Louise Norris
Louise Norris
2 years ago
Reply to  tony Russo

Unfortunately, no. The self-employed health insurance deduction worksheet states that you cannot deduct any premiums for a month when you were even eligible for employer-subsidized insurance: https://www.irs.gov/pub/irs-pdf/p535.pdf (so if you’re eligible for a plan subsidized by a spouse’s employer and you enroll in an individual market plan instead, you wouldn’t be able to deduct your individual market premiums).
In the scenario you’re describing, however, the premiums are almost certainly payroll deducted from the spouse’s check on a pre-tax basis. So even if deductions were allowed, they wouldn’t be allowed in that case because it would be double-dipping.

Doug
Doug
2 years ago

Are monthly contributions to a Christian health share ministry eligible as deductible health insurance premiums, in the case of a
self-employed person ?

Louise Norris
Louise Norris
2 years ago
Reply to  Doug

We recommend that you consult with a certified tax adviser for questions related to your specific situation. But in general, the answer to your question is no. In Publication 535, the IRS clarifies that self-employed people can deduct premiums for medical insurance, dental insurance, or long-term care insurance. But health care sharing ministry plans are specifically not insurance, so their member contributions would not fall under any of the deductible premium categories. Here’s more about sharing ministry plans: https://www.healthinsurance.org/glossary/health-care-sharing-ministry/ People who had these plans were exempt from the ACA’s individual mandate penalty from 2014 through 2018 (the penalty was eliminated after that). They were still considered uninsured, but the law granted them an exemption from having to pay a penalty for being without health insurance.

Ray
Ray
2 years ago

Can out of pocket medical expenses be included in the SEHI deduction of premiums for self employed

Rob
Rob
2 years ago

Does an S-corp have to reimburse a more-than-2% shareholder for the entire cost of their individual market health plan? Can the S-corp reimburse only part of the more-than-2% shareholder’s premium? Can the reimbursement amount be capped to a certain amount? 
PS Thanks for writing this article. I found it to be very helpful. 

Louise Norris
Louise Norris
2 years ago
Reply to  Rob

No, there is no requirement that an S-Corp reimburses a more-than-2% shareholder for the entire premium; it can reimburse only part of the premium instead. In that case, the amount the more-than-2% shareholder can deduct on their tax return is capped at the amount that the S-Corporation reimbursed and added to their wages on the W-2. An S-Corp will need to take an equitable, non-discriminatory approach to reimbursing premiums if there are multiple more-than-2% shareholders.
[Note that if the more-than-2% shareholder will qualify for a premium tax credit, the amount that can be deducted on their tax return will also be limited to no more than the person actually ends up paying in premiums after the tax credit is applied; the no double-dipping rule always applies.]

Jon
Jon
2 years ago
Reply to  Louise Norris

Is having higher caps for more-than-2% shareholders paying for family medical plans vs single member plans considered inequitable or discriminatory?

Louise Norris
2 years ago
Reply to  Jon

I’d advise you to consult with legal counsel in order to ensure that whatever reimbursement system you develop is nondiscriminatory. My guess would be that’s ok, because family vs. single coverage is a metric that’s allowed to be used under other reimbursement setups, like QSEHRAs: https://www.healthinsurance.org/glossary/qualified-small-employer-health-reimbursement-arrangements/ But we can’t give specific legal advice.

Valerie
Valerie
2 years ago

1) What if I paid the premiums for coverage in 2019 on a date in Dec 2018? Can I claim this deduction on my 2019 taxes? Or would I need to amend my 2018 taxes?
2) What if I purchase my health insurance policy through my university (I am a student) but I work as an independent contractor – can I claim this as self-employed health insurance?

Valerie
Valerie
2 years ago
Reply to  Valerie

Another question – this deduction reduce the self-employment tax I pay (schedule SE), correct? I’m seeing that it doesn’t reduce indepdent contractor net income (schedule C). It would only lower my AGI and therefore my “taxable income” on Form 1040 line 11b?
I ask because my AGI is already well below my standard deduction, so I don’t have any taxable income. Yet, I still have to pay SS/Medicare tax because it is self employment income. Confusing system. I’m just a college student walking dogs and such.
Thank you for this article and your replies to comments!

Valerie
Valerie
2 years ago
Reply to  Valerie

sorry, I meant to say *doesn’t* reduce self-employment tax.

Louise Norris
2 years ago
Reply to  Valerie

Valerie, those are great questions, and you’ll probably want to reach out to a tax advisor for some additional clarification. Our area of expertise is health insurance as opposed to tax law. But I can offer a few bits of information.
1.) I think you might be able to do it either way. Intuit says people can deduct the premium for the year in which they paid it, as long as they don’t deduct it for the following year as well: https://ttlc.intuit.com/community/taxes/discussion/is-an-insurance-premium-payment-paid-in-december-for-coverage-starting-in-january-2017-considered-a/01/643820 But for people who buy their coverage in the marketplace/exchange, the 1095-A is set up to count the premiums as paid during the month the coverage was provided, regardless of when they were actually paid: https://www.irs.gov/pub/irs-pdf/f1095a.pdf
2.) I think you should be able to claim the premiums you paid for your student health insurance (but again, verify this with the IRS or a tax advisor). You cannot deduct employer-sponsored health insurance using the self-employed health insurance deduction, or claim it at all if you were even *eligible* for employer-sponsored health coverage through your own employer or your spouse’s employer. But if your student health plan was not subsidized at all by school, and you paid the premiums with after-tax money, it seems like it should fit within the criteria of coverage that you’re allowed to deduct using the self-employed health insurance deduction.
3.) Your interpretation is correct here. The self-employed health insurance deduction reduces your AGI, but it does not reduce your self-employment taxes (SS and Medicare).

JDG
JDG
1 year ago

Can a wife take a self-employed health insurance deduction for premiums that are deducted from her husband’s state retirement income and are included in the 1099-R total taxable amount? These premiums cover the wife as well. Or are they just a Schedule A medical deduction? I am aware that Medicare premiums can be deducted as self-employed health insurance but not group health insurance premiums through an employer.

Louise Norris
Louise Norris
1 year ago
Reply to  JDG

We recommend that you contact a certified tax advisor for questions about your specific situation. But as general background information, Publication 535 clarifies that the self-employed health insurance deduction cannot be taken for “any month you were eligible to participate in a health plan subsidized by your or your spouse’s employer.” https://www.irs.gov/pub/irs-pdf/p535.pdf It sounds like the health insurance premiums are being taken out of fully taxable money, so it wouldn’t be double-dipping to deduct them. But if the employer is subsidizing the cost in any way, the self-insured health insurance deduction probably cannot be used. If in doubt, you can check with the state to see if they subsidize the coverage for retirees.
It sounds like this is not the case here, but Publication 535 also notes that the self-employed health insurance deduction cannot be used for “insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer.”

Jaye F Wheeler
Jaye F Wheeler
1 year ago

I’m retired and buy health insurance for my wife and me through my ex-employer’s health insurance plan. The monthly premium is paid from our joint checking account. My wife is self-employed. Can we use the self employed health insurance deduction for the cost of the monthly premium?

Louise Norris
Louise Norris
1 year ago
Reply to  Jaye F Wheeler

We definitely recommend that you speak with a certified tax professional about this. Publication 535 explains the rules for the self-employed health insurance deduction (see page 22): https://www.irs.gov/pub/irs-pdf/p535.pdf
I assume the health insurance premiums are paid on a post-tax basis? (if not, they can’t be deducted as a medical expense or a self-employed health insurance deduction).
Assuming the employer isn’t subsidizing any portion of the cost, it’s possible that the premiums could be deducted based on your wife’s self-employment. But the sticking point, in my mind, would be the requirement that the coverage for the self-employed person has to be established in the name of the self-employed person or their business. In this case, your wife is the self-employed family member, but the policy is in your name, with her as the spouse.
This is a complicated situation, as evidenced by the comments on this thread: https://ttlc.intuit.com/community/tax-credits-deductions/discussion/self-employed-health-insurance-deduction-for-retiree/00/1021234

Joyce
Joyce
1 year ago

My husband is self employed. We claim the Maximum monthly subsidy on our health plan. We do claim the premiums we pay every month as a deduction on our taxes. My question is what happens if we make more money in the year than we estimated and end up having to pay back all of the subsidy when we file our taxes? Can we claim the subsidy that we pay back to the irs as a deduction and if so, how would that work? It seems like we would be able to count it somewhere since he is self employed and we count the monthly amount of premiums we pay during the year.

Louise Norris
Louise Norris
1 year ago
Reply to  Joyce

Joyce, your tax software or accountant should be able to walk you through the process. But basically, self-employed people can deduct whatever premiums they paid out of their own pocket during the year.
So if your premium is $1,500/month and you’re getting a $1,000/month subsidy, you can deduct the other $500 (for a total of $6,000 for the year). But let’s say your income is higher than expected and you have to give back $400/month of subsidy money when you file your taxes (meaning that you only actually qualified for $600/month in subsidies, instead of $1,000). You’d then be able to deduct $900/month in health insurance premiums under the self-employed health insurance deduction (for a total of $10,800 for the year), since that’s what you ultimately ended up paying out-of-pocket for your health insurance coverage.
[Note that if you’re set up as an S-Corp and purchasing individual market health insurance in your own name, your self-employed health insurance deduction is limited by the amount that your S-Corp reimburses you for health insurance and includes on your W-2 for the year… this can get tricky in situations like this, since you might not know how much your subsidy amount is until you complete your tax return.]

Dill Burr
Dill Burr
1 year ago

Im self-employed. Im taking a deduction for premiums paid. I’m repaying ACA subsidy full amount. Should that amount be deductible as if it were a premium payment?

Louise Norris
Editor
1 year ago
Reply to  Dill Burr

If you’re talking about 2020, you do not need to repay any of the premium subsidy, regardless of why your income ended up being higher than you initially projected: https://www.healthinsurance.org/blog/how-the-covid-relief-law-will-rescue-marketplace-plan-buyers/

But in other years, the general rule is that you can only deduct premiums you pay yourself, but you cannot deduct the portion that’s covered by premium tax credits. If you end up having to repay some or all of the advance premium tax credit that was paid on your behalf during the year, you would then get to increase your deductible premiums by that amount, since the result is that you’re paying the premiums yourself (as opposed to having them paid with the tax credit).

Again, however, none of this is applicable for 2020, as excess premium tax credits do not have to be repaid. So you’ll only use the self-employed health insurance deduction for the after-subsidy portion of the premiums you paid yourself during 2020.

Hiroshi
1 year ago
Reply to  Louise Norris

I’m self-employed. For 7 out of 12 months, I opted for paying a full premium, I knew it’ll be adjusted at the tax time so it’s the same, plus I wanted to collect airline miles on my credit card 😛 This way I can also eliminate my duties to pay ES taxes I thought… am I correct?
OK my main question. My CPA calculates the whole premium amount I paid as Self Employed Health Insurance Deduction. I thought it’s double dipping, because PTC will be credited back to me. But his response was “You paid that premium, did you?”. He said that they don’t make professional tax software that excludes types of tax issues.
May I ask what do you think? Thank you!

Louise Norris
Editor
1 year ago
Reply to  Hiroshi

You’re correct that it’s double-dipping. You can only take the self-employed health insurance deduction for the amount that you actually end up paying for your coverage, after any premium tax credits are applied. This can result in some circular math, which is explained here: https://www.healthinsurance.org/faqs/how-does-the-irs-calculate-premium-tax-credits-for-self-employed-people-when-their-agi-depends-on-their-health-insurance-premium-amount/ (note that the American Rescue Plan has eliminated the income cap for subsidy eligibility for 2021 and 2022, but the underlying logic still holds true: the larger the self-employed health insurance deduction, the larger the subsidy will be, but that drives down the self-employed health insurance deduction, which results in circular calculations).

Mike
Mike
1 year ago

Since the Self-employed health insurance deduction is capped at the amount that an S corp reimburses its more than 2% shareholder, if an individual based the reimbursement amount on the previous year’s income and is suddenly making more money, should they decrease the amount of the Advanced PTC and increase the amount the S corp reimburses? In other words, if the S corp reimburses too little and an individual has to repay some or all of the PTC, the deduction on line 16 will be capped at the value indicated on the W-2. Is this correct? Additionally, what happens if an S corp reimburses too much because an individual overestimated their yearly income? Will the W-2 need to be adjusted? Can an individual change the amount of Advanced PTC they get mid-year? Thanks

Louise Norris
Editor
1 year ago
Reply to  Mike

We always recommend that you check with a tax advisor when it comes to tax-related questions. But in general, yes, it sounds like you’ll need to adjust your advance premium tax credit amount and your S-Corp reimbursement amount in order to have things work out when you’re filing taxes.

You’re correct that the self-employed health insurance deduction is capped at the amount that S-Corp reimburses. If the S-Corp reimburses too much, it’s essentially just additional income that’s subject to regular income tax, as the self-employed health insurance deduction will be limited to the amount that you paid for the health coverage after the applicable premium tax credit is applied. But if the S-Corp reimburses too little, you’ll end up missing out on some of the deduction that you’d otherwise have been able to take via the self-employed health insurance deduction.

You can change the amount of APTC you’re receiving by contacting the exchange and providing them with updated income information. They can only change it for the remainder of the year, so keep that in mind when you’re making the adjustment (since you’ll be accounting for the whole year when you file your income taxes)

Greg
1 year ago

I have had this question for the last two years. As a pastor, I file a W-2 but am considered self employed (pay SE tax estimates). I am covered “medically” under Covered California (Marketplace) ONLY for health. I have a private policy for dental through CIGNA. Can I deduct the annual premium for the dental insurance on schedule 1, line 16, of 1040 in determining AGI?

Louise Norris
Editor
1 year ago
Reply to  Greg

Greg,
As is always the case with tax-related questions, we recommend that you consult with a tax advisor. But in general, yes, you can deduct dental premiums as well as medical premiums (and long-term care premiums, with some limitations). This is explained in IRS publication 535 (see page 21): https://www.irs.gov/pub/irs-pdf/p535.pdf

Deanna Rickard
Deanna Rickard
7 months ago

My husband is a self-employed sole proprietor, and I work with him in the business. The account holder on our health insurance (obtained through the Marketplace) is myself, with my husband listed as a dependent. The instructions for Schedule C, and Publication 535 both state the policy can be either in the name of the business or in the name of the individual. Can we still deduct our health insurance premium, even though it is not in the name of the sole proprietor?

Louise Norris
Editor
7 months ago
Reply to  Deanna Rickard

I want to caution you that I am not a tax professional, and advise you to consult with someone who is before filing your tax return. But that said, my understanding is that yes, you can still deduct the health insurance premiums. “In the name of the individual” is used to differentiate from a group health plan that’s purchased by the business. And all of the IRS rules regarding this (including the rules that allow for deductions if the person is 2%+ shareholder in an S-Corp) are clear in noting that the plan can also cover the spouse and dependents.

It’s also worth noting that when people have coverage through the marketplace and file Form 8962, it doesn’t matter which spouse is listed first on the tax return or on the Marketplace policy — they don’t have to match. So for all intents and purposes, two spouses on the same Marketplace plan are treated as equals in terms of who obtained the coverage.

If you receive a premium tax credit in the Marketplace (or if you’ll qualify to claim it when you file your taxes), note that you can only deduct the portion of the premium that you paid yourself. So the part that’s paid by the premium tax credit can’t be deducted under the self-employed health insurance deduction rules.

Judy Johnston
Judy Johnston
6 months ago

In October 2020, we began taking COBRA after I was separated from my healthcare job due to the pandemic. I provided all health insurance for myself and my husband through my employer plan. I also have a training business on the side for the past 15 years of which I am sole proprietor and have filed taxes on. COBRA will run out at the end of March 2022 and we will be purchasing from the Marketplace from April 1 on. My question: For 2022 am I able to deduct our 9 months of Markeplace insurance premiums (after subsidy). I know the 3 months of COBRA cannot be deducted since it is in the name of my former employer. Does combining both COBRA coverage and Marketplace coverage in the same year have any ramifications in deductibility of the Marketplace premium?

Louise Norris
Editor
6 months ago
Reply to  Judy Johnston

The mid-year plan change should not be a problem. Assuming you continue to be profitably self-employed in 2022, you’ll be able to deduct your after-subsidy marketplace premiums using the self-employed health insurance deduction.

Elizabeth
Elizabeth
6 months ago

I’m a nanny in MN and I’m wondering if the Self employed health insurance deduction is something I qualify for as a nanny? I currently don’t receive any contributions from my nanny family or qualify for any financial assistance through my state.

Louise Norris
Editor
6 months ago
Reply to  Elizabeth

Elizabeth,
In the eyes of the IRS, nannies are generally considered household employees, rather than self-employed independent contractors. https://www.investopedia.com/terms/h/household-employee.asp

I would recommend that you consult with a tax advisor to make sure that your work is being correctly classified and that all of the applicable tax rules are being followed. That said, employers (in this case, the family that has hired you) are not required to provide health coverage for employees unless they have at least 50 employees, which is unlikely in a scenario in which it’s just household employees.

But are you certain that you don’t qualify for any financial assistance through MNsure? https://www.mnsure.org/ The open enrollment period for 2022 coverage continues through January 15, and premium tax credits are larger and more widely available than they used to be. Depending on your age and location, you might qualify for a premium tax credit even with income well above 400% of the poverty level (that used to be the cut off for subsidy eligibility, but that’s no longer the case, at least through the end of 2022).

Ed
Ed
5 months ago

Can a self-employed individual deduct health insurance payments if the individual’s health insurance is subsidized by a *former* employer? I think that the pertinent statute is 26 USC 162, which says “employer,” not “employer or former employer.” The Code is careful to specify “former employer” in other contexts, see 26 USC 35(f)(1)(A); 26 USC 2039.

Louise Norris
Editor
5 months ago
Reply to  Ed

This is definitely a situation where you’d need to contact a CPA. But note that IRS Publication 535 (see page 23: https://www.irs.gov/pub/irs-pdf/p535.pdf) states that:
“You can’t take the [self-employed health insurance] deduction for any month you were eligible to participate in any employer (including your spouse’s) subsidized health plan at any time during that month.”
Their use of the word “any” would tend to make me think that the rules are the same regardless of whether it’s a current or former employer. But I’m not a CPA and can’t give a definitive answer on this.

SteveB
SteveB
5 months ago

I was self-employed for 2021 and I (mistakenly) paid my health insurance premiums from my HSA. Would that fact that I paid through my HSA affect my ability to deduct those same premiums on my return? Thank you

Louise Norris
Editor
5 months ago
Reply to  SteveB

There are very limited circumstances when you can use HSA funds to pay health insurance premiums. They include: COBRA, Medicare premiums, long-term care premiums (with limits based on how old you are), and health insurance premiums paid while you’re receiving unemployment benefits.

Unless your premiums were in one of those categories, you’ve taken a withdrawal from your HSA for a non-qualified expense. That means you’ll owe income tax on the money, plus a 20% penalty, unless you’re able to return that money to your HSA. So your first step should be to contact your HSA custodian and see if they’ll let you return that money before the tax filing deadline. Here’s more about how this works: https://hsastore.com/learn-ineligible-expenses-hsa.html

Once you’ve returned the money to your HSA, you can deduct the premiums using the self-employed health insurance deduction. Even if your HSA won’t let you return the funds, you should still be able to deduct the premiums using the self-employed health insurance deduction, since you’ll have to pay income tax and a penalty on the HSA withdrawals. But I would definitely advise that you contact a CPA if your HSA custodian won’t work with you to get the money back into your HSA.

SteveB
SteveB
5 months ago
Reply to  Louise Norris

I was on COBRA, sorry for leaving out that key piece of info!

SteveB
SteveB
5 months ago
Reply to  SteveB

I did some more research and found an article from 2019 stating that “COBRA premiums are not deductible if you’re self-employed because the IRS requires that the insurance plan is under the business name of the employer providing you with the coverage.” I assume this is still correct? Thank you for your help!

Brenda Walters
4 months ago

I am retiring from a public school system. I understand that the education system is required to allow retirees to buy the plans offered to employees of the district. The retiree must pay the full premium price of the insurance. I have not shopped but I am assuming the cost of the premium will be cheaper than buying insurance off the street. If I am self-employed, can I claim this premium amount and reduce my AGI?

Last edited 4 months ago by Brenda Walters
Louise Norris
Editor
4 months ago
Reply to  Brenda Walters

I don’t think so, but I would recommend that you discuss this with a CPA to be sure. IRS Publication 535 (normally posted here: https://www.irs.gov/pub/irs-pdf/p535.pdf but they’re currently working on an updated version) clarifies that you cannot use the self-employed health insurance deduction if you’re *eligible* for an employer-sponsored plan. But for other circumstances, access to retiree coverage is not treated the same as access to active-employee coverage. Here’s how it works for ACA premium tax credits: https://www.healthinsurance.org/faqs/im-60-and-retired-with-no-income-i-can-get-insurance-from-my-former-employer-but-its-very-expensive-do-i-qualify-for-insurance-under-the-exchanges/ However, I think that if you choose to accept the retiree coverage, it would count as employer-sponsored coverage and thus make you ineligible for the self-employed health insurance deduction.

Also, depending on your income, definitely do not assume that the retiree coverage is going to be less than the price of a self-purchased plan. Unless your income is quite high, that’s probably not going to be the case. The ACA’s income-based premium tax credits are quite generous, and having access to a retiree health plan does not make you ineligible for the premium tax credit (as long as you reject the retiree coverage and enroll in a plan through your state’s marketplace instead). You can play around with our subsidy calculator to see how much your subsidy might be if you were to enroll in a plan through the marketplace: https://www.healthinsurance.org/obamacare/subsidy-calculator/

You should then be able to use the self-employed health insurance deduction for the portion of the premiums you pay yourself (ie, the part that isn’t covered by the premium tax credit): https://www.healthinsurance.org/faqs/can-i-deduct-my-exchange-premiums-when-i-file-taxes-next-year/ However, that would depend on whether access to a retiree health plan counts as “being eligible for an employer-sponsored health plan.” My guess is that it doesn’t, given how the IRS handles premium tax credit eligibility (ie, the rules are different for people with access to active-employee coverage versus access to retiree coverage). But again, I recommend that you check with a CPA on that point.

And congratulations on your retirement!

Jen
Jen
2 months ago

I left my full-time job mid-2021 to go to graduate school, so I shifted from employer-provided to my own health insurance coverage. I delayed working as long as possible during the school year, but will soon start consulting — however I was not doing consulting work in 2021. In this instance, would I qualify for self-employed health insurance contributions/deductions because I don’t qualify for unemployment benefits? Thanks for your help.

Louise Norris
Editor
2 months ago
Reply to  Jen

Jen,
You have to have self-employment income in order to qualify for the self-employed health insurance deduction. And you can only deduct up to as much as your self-employment earned during the year. So you would need to be filing your 2021 taxes as a sole proprietor, LLC, or partnership (or S-Corp owner, depending on how the health coverage was funded), and you would need to show a profit from that business in order to be able to use the self-employed health insurance deduction.
It doesn’t sound like this was the case, so the self-employed health insurance deduction is probably not applicable for 2021 (although it may be for 2022, depending on how you’ll be filing your taxes). But if you bought your coverage in the marketplace/exchange for the second half of 2021, you may find that you’re eligible for a premium tax credit to offset some of the cost. We recommend that you consult with a CPA to ensure that you’re maximizing any applicable credits or deductions.

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