October 25, 2023

In general, medical insurance may be deductible only if it exceeds 7.5% of your Adjusted Gross Income (or AGI) and you choose to itemize your deductions. This would mean that your medical insurance premiums must be relatively high to avail this deduction and you have evaluated that itemizing your deduction will provide more tax savings for you than using the standard deduction. 

However, the case is not the same for the self-employed. A self-employed may deduct 100% or the full amount of qualified health insurance premiums without the need to itemize deductions. This is because self-employed health insurance premium is reported as an adjustment to your income lowering your AGI rather than being reported as an itemized deduction on form 1040. 

 Self-Employed Health Insurance Deductibility Rules 

If you are self-employed, you may be able to deduct expenses paid on medical, dental, and qualified long-term care insurance for yourself, spouse, your dependents, and non-dependent children aged 26 and below. For this deduction, a child is defined as either your biological, stepchild, adopted, or foster child. 

To qualify as deduction, the health insurance plan must be established or considered to be established under your business. The policy can either be under the business name or your name and must meet any of the following criteria: 

  • On the tax year being reported, you were self-employed and had a net profit. 
  • On the tax year being reported, you were a partner with net earnings from self-employment. 
  • You used one of the optional methods to figure your net earnings from self-employment on Schedule SE (Form 1040) Self Employment Tax. 
  • On the tax year being reported, you received wages from an S-corporation in which you were a more-than-2% shareholder. 

Notice that you must have a net profit from your business to be able to claim this deduction since its deductibility is limited up to the business’ net earnings. 

Eligibility to Other Coverage Plans

If you or your spouse qualifies for an employer-sponsored plan in any month within the reporting year, you cannot take the self-employed health insurance deduction during those months even if you chose not to participate in any of the employer-sponsored plans.  

Qualified Long-term Care Insurance Deductibility Limit 

As the name suggests, qualified long-term care insurance is a type of insurance that provides coverage for long-term care services such as preventative, therapeutic, rehabilitative, maintenance, and personal care services.  

The deductibility of qualified long-term care insurance premium is limited, depending on the covered person’s age. The maximum amount you can deduct per covered person by age bracket is as follows: 

Age Bracket (at the end of the Tax Year) Maximum Amount 
40 and below $450 
41 to 50 $850 
51 to 60 $1,690 
61 to 70 $4,510 
71 and above $5,640 

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