Who Can Claim the Self-Employed Health Insurance Deduction
- Self-employed people reporting income on Schedule F (for farmers) or Schedule C (other self-employed persons).
- General partners in a partnership and actively participating members in an LLC treated as a partnership who have self-employed income.
- Employees of an S-corporation who own 2% or more of the s-corporation's stock.
Maximum Limit for the Self-Employed Health Insurance Deduction
Before claiming this tax deduction, you must calculate your allowable health insurance deduction. Take your self-employment income, and subtract the 50% deduction for self-employment taxes, and subtract any retirement contributions you make to SEP-IRA, SIMPLE-IRA, or Keogh plan. The remainder is your allowable deduction for health insurance expenses.
Health Insurance Deduction in a Loss Year
If you are reporting a loss from your self-employed activity, then you are not eligible to deduct your health insurance costs since this particular deduction is limited by your self-employment income. You can however still claim the health insurance expenses as an itemized medical deduction on your Schedule A.
Eligibility for Group Insurance Limits Your Deduction
You can deduct the full cost of health insurance you purchase for yourself, your spouse, and/or your dependents. However, you cannot deduct any insurance costs for any months you were eligible to participate in a group health insurance plan through your or your spouse's employer. For example, if you paid for 12 months of health insurance coverage for yourself and your family, but you became eligible to participate in your spouse's group health insurance in December, then you can deduct only 11 months worth of insurance premiums.
Where to Claim the Deduction
You claim the health insurance deduction as an "above the line" tax deduction on Form 1040. It's line 29 on the 2009 form. You will need to use the worksheet provided in the Instructions for Form 1040 (it's on page 28 of the 2010 version of the pdf document).Any health insurance premiums that you cannot deduct directly on Form 1040, you may be able to deduct as a medical expense on Schedule A.
Special Rule for 2010 Only
Self-employed persons will be able to deduct their health insurance premiums as a business expense that reduces their self-employment tax and their income tax for the year 2010 only. The deduction will still be taken on Line 29 of the Form 1040, and you'll adjust the net amount of self-employed income subject to the self-employment tax on Schedule SE Line 3.For 2009, health insurance reduces income tax only; it does not reduce the self-employment tax. For 2011 and later years, the health insurance deduction will revert back to being deducted only against the income tax, unless Congress decides to extend this particular tax break.
