Self-Employed Health Insurance Deduction

Self-Employed Health Insurance Deduction

The Self-Employed Health Insurance Deduction is a tax deduction available to self-employed individuals that allows them to deduct the premiums paid for health insurance for themselves, their spouse, and their dependents. This deduction is taken on the individual’s personal income tax return and is particularly beneficial for those who do not have access to employer-sponsored health insurance.

To qualify, the self-employed individual must have a net profit from their business and the policy must be established under the individual’s name or the business’s name. The deduction is limited to the amount of net profit from the business and cannot exceed the self-employed individual’s income. This deduction is an adjustment to income, meaning it can reduce the individual’s adjusted gross income (AGI), which can lead to additional tax benefits and lower overall tax liability.

For example, if a self-employed person has a net profit of $50,000 and pays $5,000 in health insurance premiums, they can deduct the full $5,000 from their taxable income, resulting in an AGI of $45,000.