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Self-Employed
Health Insurance
Are You Eligible for a Deduction?
Generally, sole-proprietors may not deduct the cost
of health insurance when calculating self-employment tax. However, under
the Small Business Jobs Act, self-employed business owners may be able to
deduct the cost of health insurance for themselves and their family.
The deduction is not available if the self-employed individual is eligible
to participate in an employer-subsidized health plan maintained by the
employer of the taxpayer or the employer of the taxpayer’s spouse.
Those who can claim the self-employed health insurance deduction include:
• Small businesses and sole-proprietors reporting income on Schedule C;
• Farmers reporting income on Schedule F;
• General partners in a partnership and actively participating members in
an LLC treated as a partnership who have self-employed income; and
• Employees of an S Corporation who own 2 percent or more of the S
corporation’s stock. Note that the amount of the health insurance premium
paid by the company must be included as taxable income in Box 1 of
the shareholder/employee's W-2, but the health insurance amount is NOT
subject to Social Security and Medicare Tax.
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