If you are self-employed, you can claim 100% of premiums paid on your tax return for medical and dental insurance and qualified long-term-care insurance for yourself, your spouse, and your dependents. The deduction is also allowed if you are a general partner in a partnership, a limited partner receiving guaranteed payments, or you received wages from an S corporation in which you were more than a 2% shareholder. As a sole proprietor, you may claim the 100% above-the-line deduction whether the policy is purchased in your own name or the name of the business.
If you are a more than 2% shareholder-employee of an S corporation, the IRS position is that the S corporation must “establish” the health plan, but the plan can be considered “established” by the S corporation even if you obtain the health plan in your own name, so long as:
- The corporation makes the premium payments to the insurance company or the corporation reimburses you for the premiums you pay.
- The premiums are reported as wages on your Form W-2 and on your tax return.
- The premiums are subject to income tax withholdings, but not FICA withholdings.
If you have a qualified long-term-care policy, part of the premium is deductible depending on your age (see below) and this amount is included in the above-the-line deduction.
The 100% deduction may not exceed your net profit from the business under which the health premiums are paid, less deductions claimed for 50% of self-employment tax and Keogh, SEP or SIMPLE retirement plan contributions.
The 100% health insurance deduction may not be claimed for any month that you were eligible to participate in an employer’s subsidized health plan, including a plan of your spouse’s employer. If the deduction would be barred for any month because of such eligibility and you have long-term-care coverage that is not employer subsidized, you may claim the 100% deduction with a portion of the long-term-care premiums that is deductible for your age.
CAUTION: FROM OUR OBSERVATIONS, IT APPEARS THAT MOST PAYROLL SERVICE COMPANIES DO NOT HANDLE SELF-EMPLOYED GROUP INSURANCE CORRECTLY. IF YOU HAVE A QUESTION AS TO WHETHER YOUR PAYROLL COMPANY IS HANDLING IT CORRECTLY, PLEASE CALL US.
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Maximum annual deductions for long-term-care insurance premiums:
- Age 40 or younger $310.00
- Ages 42 through 50 $580.00
- Ages 51 through 60 $1,150.00
- Ages 61 through 70 $3,080.00
- Over age 70 $3,850.00
