Health Insurance for Self-Employment
Maximizing Your Self-Employed Health Insurance Deduction for 2024: What You Need to Know
If you’re self-employed, the cost of health insurance can be a significant burden. Fortunately, the IRS allows eligible self-employed individuals to deduct the cost of health insurance premiums for themselves, their spouse, dependents, and even children under age 27 (even if not claimed as dependents). This deduction is a valuable tax benefit, as it reduces your adjusted gross income (AGI) and is claimed “above the line” on your tax return, making it available even if you don’t itemize deductions.
Here’s what you need to know to take full advantage of the self-employed health insurance deduction for the 2024 tax year.
Who Qualifies for the Deduction?
You may be eligible if you:
Report a net profit from self-employment on Schedule C or F (Form 1040).
Receive self-employment earnings as a partner (reported on Schedule K-1, Form 1065).
Use an optional method to calculate net earnings from self-employment on Schedule SE.
Are a more-than-2% shareholder in an S corporation, and the S corporation paid or reimbursed your health insurance premiums (these must be included as wages on your Form W-2).
What Premiums Can You Deduct?
You can deduct premiums paid for:
Medical insurance
Dental insurance
Vision insurance
Qualified long-term care insurance (subject to annual age-based limits)
Medicare premiums (if you voluntarily pay for coverage similar to private insurance)
Coverage can extend to your spouse, dependents, and any child under age 27 at year-end, even if not claimed as a dependent.
How Must the Plan Be Set Up?
The insurance plan must be established under your business:
Sole proprietors: The policy can be in your name or the business’s name.
Partners: The policy can be in your name or the partnership’s name, but if you pay the premiums, the partnership must reimburse you and report the premiums as guaranteed payments.
S corporation shareholders: The policy can be in your name or the S corporation’s name. If you pay the premiums, the S corporation must reimburse you and report the premiums as wages on your W-2.
Important Deduction Limitations
1. Earned Income Limitation:
Your deduction cannot exceed the net profit from the specific business under which the plan is established. If you have multiple businesses, you cannot combine profits and losses to increase your deduction.
2. Subsidized Health Plan Limitation:
You cannot take the deduction for any month you were eligible to participate in a subsidized health plan maintained by your employer, your spouse’s employer, or the employer of your dependents or children under 27—even if you didn’t actually enroll.
3. Long-Term Care Insurance Limits:
For 2024, the maximum deductible premiums for qualified long-term care insurance are:
Age 40 or younger: $470
Age 41–50: $880
Age 51–60: $1,760
Age 61–70: $4,710
Age 71 or older: $5,880
4. Premium Tax Credit Coordination:
If you purchased insurance through the Health Insurance Marketplace and received advance premium tax credits, you cannot deduct the portion of premiums paid with the credit. The deduction is limited to the amount of premiums you actually paid out-of-pocket.
How to Claim the Deduction
Use the worksheet in the Form 1040 instructions or Form 7206 to calculate your deduction.
If you have more than one health plan under different businesses, complete a separate Form 7206 for each.
Claim the deduction on Schedule 1 (Form 1040), line 17.
Other Key Points
Do not include the amount deducted for self-employed health insurance when calculating your medical expense deduction on Schedule A.
The deduction does not reduce your net earnings from self-employment for self-employment tax purposes.
If you are eligible for a subsidized plan for only part of the year, you may take the deduction for the months you were not eligible.