Self-employed U.S. tax filers are eligible for a special tax deduction called the self-employed health insurance deduction. Understanding this special health insurance tax deduction has the potential to save you a significant amount of money every year.
How does the self-employed health insurance deduction work?
If you qualify, the self-employed health insurance deduction allows you to deduct 100 percent of your out-of-pocket health and dental premiums. You can also deduct qualifying long-term care insurance premiums, subject to annual maximums based on your age.
What health insurance premiums does the self-employed deduction cover?
The self-employed health insurance deduction covers amounts paid out-of-pocket for medical, dental, and long-term care insurance premiums for yourself, your spouse, and your dependents. It also covers amounts paid for coverage for non-dependent children under the age of 27.
How do I qualify for the self-employed health insurance deduction?
According to the IRS in the instructions for Form 7206, the health insurance plan must be established or considered to be established under your business to qualify as outlined here:
Note: You can’t take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you didn’t actually participate.
Are COBRA premiums eligible for the self-employed health insurance deduction?
This is considered a gray area. Different tax professionals have different opinions on the matter:
- Tax professionals who say COBRA premiums are not eligible argue that COBRA policies do not meet the requirements for claiming the self-employed health insurance deduction because they are set up under the name of you or your spouse’s prior employer which violates the requirement for the policy to be set up under your name or your business’s name.
- Tax professionals who say COBRA is eligible for the self-employed health insurance deduction argue that since the self-employed person is covered by the plan and paying the premium out of pocket with their own money, it should be eligible based on common sense and intent.
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