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Is Personal Health Insurance A Write-Off?

Are you able to write your personal health insurance off as a business expense?

Simply put, though many individuals qualify for deductions on their tax returns when they pay their own health insurance, businesses are the only things that are allowed to deduct health insurance as a business expense.

Self-Employed

If you are self-employed, you can deduct premiums for medical, dental and long-term care insurance, as long as you are not eligible to receive insurance through your own employer or spouse’s employer. If doing this, the health insurance policy can either be in the name of the individual filing or in the name of the business, but the Schedule C, Profit and Loss From Business, is required to show a net profit. While this is the case, it is on the individual tax return, or Form 1040, where this deduction will be taken, rather than the Schedule C.

Partner in a Legal Partnership

If you are a partner in a legal partnership, both partners qualify for deductible medical insurance, either as individuals or through the partnership. Whichever way you choose to file, the premiums will be reported as gross income on a Schedule K-1 of a Form 1065, Partner’s Share of Income, Deductions, Credits. As partnerships pass through profits or losses to partners’ tax returns and do not pay business tax, the deduction on your tax forms will be a personal deduction. This deduction is done in the same fashion as a sole proprietor. S corporations are designed for small businesses and classified as a special corporation under federal tax law. This means that an S corporation will not pay business income taxes and means that the small business health insurance deduction for shareholders will be very similar to the deductions for partners.

Shareholders or Corporations

Shareholders or corporations are able to pay personal health insurance premiums. The only difference is how they are reported. When the corporation is what pays, it is reported as income on a W-2 and deductions are taken on a personal income tax form. The health care policy must be in the corporation’s name in order for this to be valid.

There is a small business health care tax credit under the Affordable Care Act that allows specific small businesses to help cover employee insurance. This credit requires that a small business has less than 25 full-time equivalent employees, pays at least half of their employee’s premiums and pays an average wage of less than $51,600 a year.

If your company does not provide you with health insurance, you may create a health savings account by yourself. Contributions to this health savings account can reduce your personal income tax, which is not unlike an individual retirement account. In order to do this, claim contributions made as an above-the-line deduction on Form 1040, even if not itemizing deductions. Any earnings in this account and distributions used for medical expenses are exempt from taxes.

You are typically unable to use Health Savings Account funds to pay health insurance premiums unless you want to incur a tax penalty. Exceptions to this are those 65 or older, those receiving unemployment or those paying for COBRA plans or similar temporary continuations of an insurance policy.