What Is the Self-Employed Health Insurance Deduction and Why Is It Important?
This special health insurance deduction allows self-employed people, who are qualified by the law, to deduct 100% of their health insurance for themselves or their spouses.
If you’re one of the hundreds of self-employed people who have to pay for their own health insurance, for themselves or their family, you might be able to get a special tax deduction.
You should ask yourself what is the self-employed health insurance deduction and why is it important. If you qualify – you take it, because it will, in fact, be one of the largest deductions you have. Unfortunately, no company is going to put you on their health insurance plan. So you have to set it up for yourself. While it may seem that having all of that in order is a lot of work – there are quite a few perks to being your own boss as well.
Firstly, you will have the freedom of being your own boss and making these important decisions for yourself. However, you will face all kinds of incentives and deductions you can take advantage of to lower your costs. That’s the whole point, isn’t it?
Here you can find all about it and make sure you’re ready when it’s time to file your taxes.
To even qualify for the deduction, your business must meet two requirements:
- Don’t have any other health insurance. You may not get self-employed health insurance if you’re legally able to participate in a health insurance plan that your employer created.
- Have consistent business income. You can deduct only as much as the net income you earn from your company. With this in mind, if your business earns no money or suffers a loss, you will get no deduction. By the law, you can only use the income from one business. The one you designate to be the health insurance plan sponsor for you.
Qualifications Are Determined Each Month
While your health insurance is deducted from your income pre-tax, eligible medical expenses can also be deducted from your final tax bill.
You need to know that you can only claim the health insurance premiums for months when neither you nor your spouse were eligible to participate in a health plan.
For example, if you were ineligible for any employer-provided health plan in the last six months because you quit your job and started your own business. Fortunately, you can claim the deduction for coverage during those six months.
You can also receive any dental or medical expense deductions. And also, for many different services that you received and paid for within the last tax year.
Your Income Must Be Greater Than the Deduction
You should know that the state will take your health care premiums out of your own income. Having that in mind, if your business reports a financial loss or you don’t have enough income to pay your premiums, then you won’t be able to claim the deduction on your tax return.
Your self-employed income needs to be equal to or greater than your health insurance deduction for this to work.
Your Earned Income Has Limitations
The deduction cannot be bigger than the earned income you collect from your own business.
For example, if your self-employment activity is basically only there so that it generates a tax loss for the year, you will not be allowed to claim the deduction. If you do this, your business will not generate any positive earned income.
To Sum It Up
If you qualify for health insurance, the deduction for self-employed premiums is a very important tax break. Moreover, we can all see that the cost of health insurance is on the rise, so a tax deduction can help you pay at least a part of the cost. And that will help to keep your head happy and carefree — in 2022 and later on in life.
There are only good things that can come up if you sign up for health. You might want to hire a tax professional to help you with this.
Your Part Time Accountant will help you fill out all the right forms with ease. Perfect for any small business.