It can be tough enough trying to get by as it is. Add the added stress of trying to figure out how much health insurance you’re qualified for and whether or not you qualify for the tax deductions that are available to self employed people. Thankfully, we’re here to breakdown everything for you so that you can make an informed decision about what’s best for you.
In this article, we’ll cover everything from the types of insurance you should have to which deductions you may be eligible for. Don’t wait any longer — read on to find out everything you need to know about health insurance and self employment!
What is a Health Insurance Deduction?
If you are self-employed and have health insurance, you may be able to deduct the cost of that coverage on your taxes. Here’s what you need to know:
To qualify for the deduction, your health insurance must be purchased through an employer-sponsored plan or through a government program like Medicare or Medicaid.
You can claim a maximum deduction of $2,500 for 2017. The amount you can deduct will depend on your income level. For example, if your income is below $50,000, you can claim the full $2,500 deduction. If your income is above $100,000 but below $250,000, you can claim half of the $2,500 deduction. If your income is above $250,000 but below $500,000, you can claim three-quarters of the $2,500 deduction. And if your income is above $500,000, you can claim all of the $2,500 exemption.
How much can an individual deduct for health insurance premiums?
The self-employed can deduct health insurance premiums if they are used to pay for the cost of coverage for themselves, their spouses, and any dependents who reside with them. The maximums that an individual can deduct vary depending on the type of plan purchased and the income level of the taxpayer. However, in general, the maximum an individual can deduct for premiums is 50 percent of the premium costs.
Who is eligible for the health insurance deduction?
Self employed individuals are eligible for the health insurance deduction if they have qualifying health insurance, which is defined as coverage that meets certain requirements. To qualify, the health insurance must be an essential part of your business coverage and meet certain requirements, including cost-sharing limitations. Additionally, you must be self employed and itemize deductions on your tax return.
If you are a sole proprietor, partner in a partnership, or employee of an S-corporation, corporation sole, or limited liability company (LLC), you generally cannot claim the health insurance deduction. However, there are exceptions that may allow you to claim the health insurance deduction if you meet certain requirements. For example, if you are self employed and have coverage from an employer that provides Archer MSA or medical expense reimbursement plans that cover at least 50% of your costs for qualified medical expenses incurred during the year, then you can generally deduct those expenses on your Schedule A along with other business expenses.
In order to calculate the amount of your health insurance deduction, it is important to know what portion of your premiums is considered cost sharing and what qualifies as qualified medical expenses. Cost sharing includes coinsurance (a percentage of the total cost), copayments (a fixed dollar amount that you pay out-of-pocket each time you use services), deductible amounts (the amount that is subtracted from your gross income before taxes are calculated), and premiums (the amount paid by you each month).
How to claim the health insurance deduction
If you are self-employed and you have health insurance, you may be able to deduct the cost of your coverage in 2017. If you’re married filing jointly, you can deduct the cost of coverage for yourself and your spouse. There are a few things to keep in mind if you want to take advantage of this deduction: You must itemize deductions on your tax return.
You must reduce your gross income by the amount of the deduction.
Your health insurance premiums must be paid with after-tax money. If you file as single, head of household, or qualifying widow(er), the premiums can be paid with pretax money. Here are some examples to help clarify how this works: John is self-employed and he pays $200 per month for health insurance for himself, his wife, and their two children.
His 2017 Adjusted Gross Income is $60,000 so he can deduct $960 (2/3rds of $2,400) on his 2017 federal taxes bill. Alice is also self-employed but she doesn’t have health insurance. She files as a single person so her premium costs ($600 per month) are not deductible because she’s using after-tax dollars to pay for them. Teresa is married filing jointly with two kids and she pays $1,200 per month for health insurance for herself , her husband , and their three children.
Conclusion
Self employed individuals may be able to deduct their health insurance premiums from their taxable income. The IRS has released an updated table that lists the maximum amount of premiums an individual can deduct each year. This information is important because it allows self employed individuals to better plan for their taxes and make sure they are taking advantage of all the benefits available to them.