If you are self employed and paying your own medical, dental or even long-term care insurance the IRS has a special tax deduction for you, which you may benefit from. To qualify for this deduction all you need is to be a self-employed person or be an employee of a sizeable corporation who owns two percent or more of the corporation’s stock.
The tax code can make it difficult for people to deduct the cost of their health insurance premiums. However, if you are self-employed and pay for your own premiums, yet are not eligible to participate in a plan through a spouse’s employer, you can deduct all of your health, dental and long-term care insurance premiums. You can also deduct premiums you paid to provide coverage for other dependents.
According to the IRS, to qualify for these deductions the health insurance needs to be established under your business. For people who are self-employed individuals, the policy can be either in the name of the business or in the name of the individual. For partners, the policy can be either in the name of the partnership or in the name of the partner. Premiums can be paid by yourself or by your partnership if they report the premium amounts as guaranteed payments to be included in your gross income.
If you are a more than two percent stakeholder in the corporation then the policy can either be in the name of the corporation or in the name of the shareholder. You can either pay the premiums yourself or the corporation can pay them and report the premium amounts on the W-2 form as wages to be included in your gross income. If the policy is in your name and you pay the premiums yourself, the corporation must reimburse you and report the premium amounts on the W-2 form as wages to be included as your gross income. If this is not done, the insurance plan won’t be considered established under your business.
Congress implemented this 25 percent deduction of self-employed health insurance in 1987 and made it permanent a few years later. In 2003 the premiums became 100 percent deductible and is claimed on 3.6 million tax returns with a work that totaled $21 billion in 2008. The deduction can be found on Form 1040 Line 29. It allows self-employed people to reduce their adjusted gross income by the amount they pay in health insurance premiums throughout the year. You will find the deduction on your personal income form and you can file for it if you were self-employed and showed profit for that year. The write-off is not for anyone who was eligible to take the group insurance from their spouse’s employers.
If you own your own business and are left to pay your health insurance premiums, then you should utilize this self-employed health insurance deduction. It can save you hundreds of dollars a year and is money that the IRS has determined belongs back in your pocket. Be sure to contact your local independent insurance agent if you have any questions about the deduction when filing your taxes.
Tax laws change all the time . . . please verify the above with a professional before making any decisions (2013).