Health insurance can be a formidable and daunting expense for the average American. Nonetheless, health insurance is indispensable by virtue of its immediate access to healthcare, preventative measures, and its financial protection in emergency situations. To be more precise, the Affordable Care Act (ACA) specifically mandates that health insurance plans cover prescription drugs, maternity care, and mental health services.
Considering that 49% of Americans rely on employer-sponsored health insurance, self-employed individuals often confront hurdles in securing affordable health coverage.
Fortunately, the IRS applies a specialized tax deduction on health premiums for self-employed individuals. This tax deduction can be claimed for a self-employed individual’s spouse and dependents. Eligible persons can deduct up to 100% off their health insurance premiums. To be eligible for the self-employed health insurance deduction, an individual should:
• Not be eligible for employer-sponsored health plan through a spouse
• Should have a positive net profit from their business
• Not have any other health insurance income
How to Secure this Deduction
When one files their federal income tax return, the IRS systematically reviews the information provided and the deductions that are claimed. If a self-employed individual files the self-employed health insurance deduction on the IRS Form 1040, the deduction will automatically be applied on their tax return.
On the “Adjustments to Income” section on Schedule 1, ensure that you lower your income to subtract the price of your health insurance premium. You can itemize your deductions and include all medical expenses. It is important to note that your deduction cannot exceed the gross revenue from your business.
If the IRS deems it necessary, they will request documentation to confirm your claims of self-employment. This documentation is not limited to but can include health insurance premiums paid, self-employment income, and documentation of insurance coverage. If the IRS detects further inconsistencies on documentation provided, they can cross reference claims with insurance companies.
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