Self-Employed Health Insurance deduction

Taxpayers with self-employment income (and, thus, self-employment tax liability) may take a deduction for health insurance costs1 incurred on behalf of himself/herself, a spouse, and dependents2. This Form 1040, Line 29 deduction is available to taxpayers whose associated insurance plan is established under their “self-employment” business. Additionally, a taxpayer must fit within one of the following categories:

-Taxpayer was self-employed and had a net profit for the year reported on Schedule C or Schedule F
-Taxpayer was a general partner in a partnership or an actively participating member in an LLC
-Taxpayer used one of the optional methods to calculate net earnings from self-employment on Schedule SE
-Taxpayer received wages in 2013 from an S corporation in which he/she was a more-than-2% shareholder (health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2)

Determining the Deduction Amount: Taxpayers should complete the Self-Employed Health Insurance Deduction Worksheet (see page 31) to calculate the size of their health insurance deduction. Certain taxpayers, however, should use Publication 535 instead. This includes taxpayers (i) with more than one source of income subject to self-employment tax, (ii) who filed Form 2555, or (iii) who used premium amounts from qualified long-term care insurance to figure their deduction.

Self-Employment Losses: Any taxpayer reporting a loss from his/her self-employment activity is not eligible to deduct health insurance costs (this particular deduction is limited by self-employment income). Such taxpayers can, however, still claim the health insurance expenses as an itemized medical deduction on Schedule A.

1Coverage premiums from medical, dental, or long-term care insurance plans are deductible. However, any insurance costs from months which the taxpayer was eligible to participate in a subsidized group health insurance plan through his/her or a spouse’s employer are not deductible.
2includes children aged 26 or younger at the end of the tax year

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