Self-Employed Health Insurance
Businesses can use the self-employed health insurance tax strategy to reimburse or pay for owner’s, shareholder-employees’ and their family members’ health insurance premiums and deduct the cost from the business’s taxes.
Commonly referred to as self-employed health insurance deduction
Do I Qualify for the Self-Employed Health Insurance?
S corporations, partnerships and sole proprietors can reduce taxes by covering the cost of their shareholders’ and family members’ health insurance premiums and deducting the expenses.
2022 Self-Employed Health Insurance Details
The self-employed health insurance deduction allows businesses to deduct the costs of health insurance premiums paid for an employee/shareholder-employer, their spouse, and any dependents (including children up to the age of 27). The cost of premiums flows through to the employee, who can then deduct the premiums on their individual tax return.
Health Insurance Tax Strategy for S Corporations
S corporations can either reimburse or directly pay shareholders with ownership of 2% or more for health insurance premiums. Under either method, the S corporation can deduct the cost. The amount paid for the health premiums must be included in W-2 earnings for the shareholders, exempt from FICA. Shareholders then deduct the premiums on Form 1040 as a self-employed health insurance deduction.
Health Insurance Tax Strategy for Partnerships
Partners in a partnership may elect the same treatment for insurance premiums as S corporations; however, premiums must be included as guaranteed payments, since partners should not be paid salary or wages from a partnership they own.
Health Insurance Tax Strategy for Sole Proprietors
Sole proprietors can pay for and deduct health insurance premiums on their Form 1040 as a self-employed health insurance deduction.
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Benefits
Reduces taxable income
Amount paid for health insurance counts as salary for an S corporation
Reduces self-employment tax
Considerations
Health insurance premiums may be expensive
May increase administrative burdens
Conflicting strategies: Medical Reimbursement Plan
Assumptions When Taking the Self-Employed Health Insurance
The business is running on net profit.
Conflicting Strategies
Medical Reimbursement Plan
Requirements to Claim the Self-Employed Health Insurance
Payments must include a full year of family insurance coverage.
The business owner(s) must not be covered by other insurance, including their spouse’s insurance.
Business Entities That Can Claim the Self-Employed Health Insurance
Schedule C
Schedule F
S Corporation
Partnership
Schedule E
The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.