Self-Employed Health Insurance Deduction

Are health insurance premiums and expenses tax deductible?

Medical expenses and emergencies can be hard to plan for in general, and at times, being self-employed can make it even more complex—especially if the expenses aren’t covered by the insurance you buy in the health insurance marketplace. The good news is you can write off some of them if you’re self-employed.

Can self-employed people deduct health insurance premiums?

The answer is yes! If you are self-employed, you may be eligible to deduct premiums that you pay for medical, dental, and qualifying long-term care insurance coverage for yourself, your spouse, and your dependents.

Premium Tax Credit (PTC)

Let’s delve into the Premium Tax Credit (PTC). That’s the credit available to you if you purchased health insurance through the Healthcare Marketplace and not an employer-sponsored plan, and it could mean a credit you can use.

Based on your household size and income, you may also get an advance on this credit, based on what’s called the Advance Premium Tax Credit (APTC).

The purpose of Form 1095-A is to provide information about how long you’ve been covered by the health plan, and how much of the APTC you received to assist you in paying the premium.

• APTC is an advance of the PTC used to lower your out-of-pocket monthly health insurance payments, or “premiums.”
• If you didn’t use all your APTC, you’ll get the rest as part of your refund.
• If your APTC is more than the actual premium you paid for your insurance, you’ll need to pay the balance. It can come out of your refund, or you’ll need to pay the IRS.

The amount of the APTC is based on the household size and income and is paid directly to the insurance provider by the marketplace.

Form 1095-A reconciles the APTC you received with the actual PTC amount you are eligible for that year. If your APTC is more than the actual premium you paid for your insurance, you’ll need to pay tax on the balance. It can come out of your refund, or you’ll need to pay the IRS.

Additionally, as someone who is self-employed, you use the premium you paid, found on your Form 1095-A to determine your self-employed health insurance deduction or itemized medical deductions on Schedule A of your tax return.

Who qualifies for the self-employed health insurance deduction?

Eligibility is determined month-by-month. You can only claim the health insurance premiums write-off for months when neither you nor your spouse were eligible to participate in an employer-sponsored health plan.

How to calculate the self-employed medical deduction?

You can also deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI). For example, if you have an AGI of $50,000, and $10,000 in total deductible medical expenses, 7.5% of $50,000 is $3,750. You can deduct the amount over $3,250. $10,000 minus $3,750 equals $6,250 of medical expenses as part of your itemized deductions.

To qualify as deductions, your medical or dental expenses must be legal in the U.S. and be for yourself, your spouse, or a dependent. Below is a brief list of medical and dental expenses that may be considered deductible

Tax deductible medical expenses

• Medical copays – Including payments to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and other medical practitioners for preventative care, surgery, dental or vision care, x-rays, lab fees, and more
• Prescriptions – Including insulin and medical devices such as hearing aids, dentures, wheelchairs, crutches, etc.
• Treatment facility payments– Including addiction services
• In-hospital payments– Including lodging and meals
• In-home health care – Including visiting nurse payments
• Dental expenses– Including braces and dentures
• Eye exams, prescription glasses, and contact lenses and associated cleaning supplies

How to claim self-employed medical deductions

You’ll want to work with a Tax Pro on all of this to be sure you’re getting every deduction you deserve, but we’ll give an overview below. First, you’ll need IRS Schedule 1. Enter your calculated health insurance write-off on Part II on the Schedule 1 as an adjustment to income, and then enter the number you or your Tax Pro calculated on page 1 of Form 1040.

It’s important to note that because this wouldn’t be an itemized deduction, this health insurance premium deduction is beneficial because it lowers your AGI, which lowers your taxes.

We went through what you may need to know at a high level, but this can all get very complicated, very quickly! We are here for you, year-round. Find a local Tax Pro who can help you with your specific situation. You never have to tax alone.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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