Health Insurance Tax Breaks for the Self-Employed

Self-employed taxpayers may be able to deduct, as an adjustment to gross income, premiums paid for medical and dental insurance and qualified long-term care insurance for themselves, their spouse, dependents and children under the age of 27 if the self-employed taxpayer is one of the following:

• A self-employed individual with a net profit reported from business or farming reported on their 1040 schedules C, C-EZ or F.
  
  
• A partner with net earnings from self-employment reported on the partnership Schedule K-1, box 14, code A.
  
  
• A shareholder owning more than 2% of the outstanding stock of an S-corporation with wages from the corporation reported on Form W-2.

The insurance plan must be established under the taxpayer’s business.

• For self-employed individuals filing a Schedule C, C-EZ, or F, the policy can be either in the name of the business or in the name of the individual.
  
  
• For partners, the policy can be either in the name of the partnership or in the name of the partner.  The taxpayer can either pay the premium out-of-pocket or the partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in the taxpayer’s return.  However, if the policy is in the taxpayer’s name and the taxpayer pays the premium out-of-pocket, the partnership must reimburse the taxpayer and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in the taxpayer’s gross income.  Otherwise, the insurance plan will not be considered to be established under the taxpayer’s business.
  
  
• For more-than-2% shareholders, the policy can be either in the name of the S-corporation or in the name of the shareholder.  You can either pay the premium out-of-pocket or your S-corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income.  However, if the policy is in your name and you pay the premiums out-of-pocket, the S-corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income.  Otherwise, the insurance plan will not be considered as established under the taxpayer’s business.

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