Whether you are a business owner, self-employed, or an individual employed by a 
business it is no surprise that health care and medical expenses can be expensive. Many Health insurance premiums and health plans can add up throughout the year. As a business owner or individual, you may be wondering if you are eligible to write off these costs as business expense on your tax return. This article will help differentiate what can and can not be counted as a tax deduction on your annual tax return.
Summary
Health Insurance Deductions for Business Owners
As a small business owner or business owner in general, you may be at an advantage when it comes to health care. According to the IRS, small business owners may be eligible to use health care and insurance costs as credit. This will reduce your business tax by giving you a larger refund of your withholding. Your business may qualify for this tax credit if your business:
- Has fewer than 25 full-time equivalent employees
- Offers a qualified health plan to its employees through a Small Business Health Options Program Marketplace (or qualify for a limited exception to this requirement)
- Pays at least 50 percent of the cost of employee-only – not family or dependent – health care coverage for each employee
- Pays average wages of less than $50,000 a year per full-time equivalent (indexed with inflation)
In order to find out more information, you can visit the IRS in order to find out more about tax credits, and filing with a Form 8941 (Credit for Small Employer Health Insurance Premiums). In addition to tax credits, you will also be able to qualify for formal tax deductions if you pay directly for your employees health care, as these expenses are recognized a business expense. Some expenses that are recognized as tax deductible include:
- Contributions made to employees Health Savings Accounts (HSAs).
- If you pay for at least half of your employees premium costs
- If you give reimbursements made through approved Medical Reimbursement Plans such as HRA’s (Health Reimbursement Arrangements).
Some of the benefits of offering health insurance as small business owners means lower payroll taxes, tax benefits, business deductions, and you and your family also get to enjoy the insurance policy benefits.
Health Insurance Deductions for the Self-Employed
Being self-employed is not an easy task, and often comes with the responsibility of purchasing your own health insurance. According to the Affordable Care Act, if you are a freelancer, entrepreneur, independent contractor, sole proprietor, or an LLC/shareholder of an S corporations owning at least two percent of the company’s stock, you may qualify for tax benefits.
As a self-employed individual, you may qualify for the the self-employed health insurance deduction. This may reduce your taxable income and ultimately help lower your tax obligation. Unlike an itemized deduction, this process is more beneficial due to the fact that it lowers your adjusted gross income (AGI).
In contrast to regular tax deductions, for self-employed individuals, the self-employed health insurance deduction isn’t taken within a Schedule C. Instead, you would claim it on Schedule 1 attached to your Form 1040 federal income tax return. The rest of your medical expenses may go on your Schedule A. As a benefit, if you qualify to claim this adjustment to you income, you will also be able to pay for any children under the age of 27, including:
- Medical insurance
- Qualified long-term care insurance / long-term care coverage(Medicare)
- Dental insurance
You may be wondering “why wouldn’t I qualify?” Unfortunately, if your spouse has a job that would allow you and your family to be covered under their plan, you may not be able to reduce your AGI on your taxes. The IRS will not allow you to reduce you income using health insurance if you are eligible to participate in a program sponsored by your spouse’s employer. You can calculate your deduction using the Self-Employed Health Insurance Deduction Worksheet in the IRS publication 535.
The Bottom Line
If you have an additional questions, it may be helpful to contact a tax professional. The cost of health insurance and health care insurance premiums can get expensive for employers and employees, so it is important to research to make the best decisions will be most beneficial for you and your employees.
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