A closer look at the self-employed health insurance tax deduction

The self-employed health insurance deduction seems simple at first glance but can trigger tricky questions when dealing with the details. Unlike other business expenses and itemized deductions, this is a separate deduction taken on the first page of the Form 1040 tax return. Because of its “above the line” status this deduction can be more valuable in reducing overall taxes than other deductions. Additionally, and perhaps more important, the deduction directly affects the amount of health insurance subsidy for modest income self-employed taxpayers.

These are some notes I made for myself in a recent review of the subject:

  • Self-employed health insurance deduction can be taken for medical, dental and long-term insurance
  • Self-employed health insurance deduction is described IRS Pub 535 “Business Expenses”
  • There are several ways to deduct health insurance on a tax return
  • Pay attention to what portion of the payment made is qualified as a deductible health insurance premium – some of the payment to an insurer may not be
  • Self-employed health insurance deduction includes the amount paid for children under age 26 even if they are not a dependent
  • Self-employed health insurance deduction is an “above the line” deduction but cannot be duplicated by a deduction on Schedule A (itemized deductions).
  • Self-employed health insurance is generally better than Schedule A deduction but is limited to the amount of your health insurance deduction. Additional amounts are reported in Schedule A.
  • Self-employed health insurance deduction can actually be a tricky item when preparing tax returns and manual adjustments are sometimes necessary to override the computer-generated tax returns.
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