Self-employed individuals have a lot of things to consider in terms of financial responsibilities. Not only do they spend on tools, equipment, office space, materials, and labor, they also shoulder the full cost of benefits that employers give their employees. An example would be medical insurance not just for themselves but for their families too. If you are a self-employed individual, this article may be for you. Do you know about self-employed health insurance deductions?
What is a “self-employed health insurance deduction''?
A self-employed health insurance deduction is a special type of tax deduction that is solely for eligible self-employed individuals. If they qualify, self-employed individuals are allowed to deduct their health insurance premiums. These are the health insurance premiums that they paid for health insurance policies for medical care including qualified long-term care insurance for themselves, their spouses, and even their dependents. The health insurance can cover children who were younger than 27 years old at the end of 2020 even if they were not the dependent of the self-employed individual.
What’s also important to remember about self-employed health insurance deduction is that it only applies to the self-employed individual’s federal, state, and local income taxes. It does not affect the person’s self-employment tax (Social Security and Medicare).
Who can qualify for Self-Employed Health Insurance Deduction?
Just because a person is self-employed does not automatically render them eligible for self-employed health insurance deduction. There are two conditions that they have to meet:
The self-employed individual must not have any other health insurance coverage. If the individual has another health insurance plan in place or if they can participate in their employer or their spouse’s insurance plan, they do not qualify for self-employed health insurance deduction.
The self-employed individual must have a business income. In a self-employed health insurance deduction, the person is only allowed to deduct as much as they earn from their business. This means that if the business does not make a profit, it also cannot make a health insurance deduction.
I am a self-employed individual with multiple businesses. Can I combine my income from all my businesses under one income limit for self-employed health insurance deduction purposes?
If you are a self-employed individual with more than one business, you are not allowed to combine the income earned from all your businesses. There can only be one business that will be your health insurance plan sponsor.
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