How to Deduct Your Health Insurance Premiums

Self-employed individuals are eligible to utilize the self-employment deduction on their individual income tax return (Form 1040). They are also able to deduct the amount paid for medical and dental insurance and qualified long­ term care insurance for self, spouse, and dependents. The insurance can also cover a child or children under age 27 at the end of 2016.

In order to claim the deduction, the plan should be established under your business. LLC members, partners in a partnership, and owners of more than 2% shares in an S corporation can establish the insurance plan in the business name or the name of the individual covered under the plan. The following criteria must be met for the plan to be considered established under your business:

One Member LLC/Sole Proprietors – Enroll in health insurance under your name or your business name and report net profits for the year on Form Schedule C.

Partners – You can pay the premium or have the company pay it. If the policy is in your name and you make the payment, then the partnership should reimburse you and report it on Schedule K as a guaranteed payment. If the partnership pays the premium, you will still need to report this amount on Form Schedule K-1 as a guaranteed payment. This amount is then deducted on your Individual Income Tax Return (Form 1040).

S Corporation Shareholders –shareholders must own at least 2% of shares. You must receive wages on Form W-2 to be able to claim the self-employment insurance deduction as an S corporation owner. An S corporation is considered to establish a health insurance plan when the premiums paid (by shareholder/owner or by the corporation) are included in box 1 of Form W-2 for all owners. If the shareholder (owner) pays for the plan, the S Corporation must reimburse him or her. This amount is then deducted on your Individual Income Tax Return (Form 1040).

If your insurance is purchased from the Health Insurance Marketplace in your personal name, follow the steps above for your business type in order to take the full deduction for health insurance premium deduction.

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Source Consulted: IRS. GOV pp. 18-21