Self Employed Insurance

If you are self employed and you also possess a health insurance plan, then as per U.S. income tax law you can claim some tax deductions. In the following paragraphs, we shall specifically discuss all the aspects pertaining to self employed health insurance deduction.

Are you eligible for tax benefits?

You are eligible for self employed health insurance deduction only if any one of the following applies to you:

• You own and manage an enterprise that is able to generate net profit as described in Schedule C, F or C-EZ.
• You are a general partner in an organization with net earnings as reported on Schedule K-1 of Form 1065.
• You are a partial partner and receive guaranteed payments.
• You receive salary from a corporation in which you hold at least 2% of the shares.
• You can also claim tax deductions if you are being paid premiums by a corporation and these premiums are included in your gross income.

Do you have the right health insurance plan?

You cannot claim tax benefits on any kind of health insurance plan. The plan should be established under the name of your business. It can cover you as well as your family. If you work in an organization and also look after your own business, then you would be having a medical insurance policy that is provided by your employer. You cannot claim deduction on such an insurance plan. Likewise, if the insurance coverage is provided by your spouse’s employer, then too you cannot claim tax benefit.

Some methods to claim self employed health insurance deduction:

Form 1040 consists of a worksheet; you can use this worksheet to figure out how much tax deduction you can claim. The table will basically help you to separate regular medical insurance premium from long-term health insurance premiums.

If you have more than one source of income that is subject to self-employment tax or you file form 2555or 2555EZ, then instead of using the spreadsheet, you should refer to IRS Publication 535- Business Expense.

If for any reason you cannot claim 100% self employed health insurance deduction, then you should calculate itemized deduction. In this deduction you can include remaining insurance premiums as well as other medical expenses. The amount you can claim as itemized deduction should not be more that 7.5% of your gross income.