Wednesday, June 15, 2022

Is Dental Insurance Tax Deductible For Self Employed

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What Is A Health Spending Account

Self-employed health insurance tax deduction. Is medical and dental insurance a write-off?

At the core, the HSA is a contract between your corporation and yourself. The contract is based on CRA guidelines that allow your corporation to reimburse you for out-of pocket medical expenses. The reimbursements are 100% tax free to you and 100% tax deductible for your company. Basically, you get to withdraw money from your company without having to pay income tax.

Now, lets find out exactly how an HSA saves you money on your medical expenses.

What Is The Premium Tax Credit

The premium tax credit is one of the subsidies available under the Affordable Care Act. This tax credit helps lower your monthly health insurance premium. You can choose to use the tax credit in advance and lower your premium each month. Or you can leave it be and receive a refundable credit when you file your taxes. If your income ends up exceeding the amount allowed and you had advanced tax credits applied, you will have to pay back those advanced tax credits come Tax Day.

Youll typically qualify for the premium tax credit if you make between 100-400% of the federal poverty level for your household size. Use this flowchart from the IRS to see if you qualify. Only health insurance plans bought through health insurance Marketplaces and websites linked to the Marketplace such as HealthSherpa are eligible for this premium tax credit. You can apply the premium tax credit to any bronze, silver, gold, or platinum plan on the Marketplace. However, it does not work on catastrophic plans.

Why Is It So Confusing

Taxes are rarely straightforward. With regard to tax claims for the self-employed, the confusion lies with multiple types of premiums. If you have several types of insurance for your business, as well as health insurance, its tough to figure out which premiums are deductible. Hiring an accountant may be appropriate.

Your health insurance plan premiums are eligible as long as the plan covers medical services that are permissible under the Medical Expense Tax Credit and your plan must qualify as eligible under the CRAs rules.

As a self-employed individual, you are in a unique situation, as employer-paid plans are typically not eligible to be claimed. If your business has employees and you are providing them with a plan, you can claim the premiums as long as they are considered a reasonable business expense. Your employees cannot, because the premiums are not taken from their pay.

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What Is A Tax Deduction

If youre filing your self-employed taxes for the first time, youre likely wondering what exactly a tax deduction is. Essentially, a tax deduction is an amount of money the Internal Revenue Service allows you to subtract from your total income in order to reduce your taxable income. In some cases, taking enough tax deductions can place you in a lower income tax bracket, substantially reducing the amount of taxes you pay for the year.

There are two primary types of deductions available under United States tax law: the standard deduction and itemized deductions.

Most people will decide to take the standard tax deduction route. This is a flat amount the IRS lets you deduct from your tax bill, no questions asked. The amount of the standard deduction varies based on your filing status.

For the 2019 tax year, the tax code stipulates that single taxpayers and married taxpayers filing separately can claim a $12,200 standard deduction amount. Those married filing jointly can claim a $24,400 standard deduction, and taxpayers filing as head of household that is, single individuals with dependentscan claim a standard deduction of $18,350.

Receiving a tax deduction of anywhere from $12,200 to $24,400 might seem attractive. However, many taxpayers reduce their tax bill by a greater amount by choosing to itemize deductions.

How Do I Deduct Health Insurance From My Taxes As A Limited Liability Company

The Best Tax Deductions For The Self

If you pay for your health insurance through your limited liability company, youâre liable on two fronts:

  • As the company
  • As an employee of your company

The company has to:

  • Report the cost on a P11D form
  • Pay Class 1A National Insurance at 13.8 percent of the cost

So, if your company pays £400 a year in insurance, it owes the HMRC 13.8 percent of that. That would be £55.20 in Class 1A National Insurance.

Yet, your company doesnât have to report to HMRC if it only pays for:

  • Annual health check-up
  • Eye tests, glasses or contact lenses required by health and safety law
  • Insurance or treatment for work-related injuries or diseases
  • Treatment while youâre working abroad

Unfortunately, as an employee of your company, health insurance counts as a benefit in kind. In other words, the cost of the policy counts as income and attracts tax at the same rate as your salary.

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The Deduction Cant Be Greater Than Your Income

One small loophole is that you cant deduct your healthcare premiums from your income if you have premium expenses exceeding the income you earned through self-employment.

Your health care premiums are supposed to be taken out of your self-employment income, so if your business reports a loss or you dont have enough income to pay your premiums, then it doesnt make sense for you to be able to claim the deduction on your self-employment tax return. Your income from self-employment must be equal to or greater than your health insurance deduction.

Is Your Health Insurance Partially Subsidized By An Employer Or The Government

One of the benefits of obtaining health insurance through an employer is the fact that the rates will be much better than if you sought out the same coverage on your own. Many employers pay a portion of the premium for you. Many marketplace plans offer competitive rates because the government is paying a subsidy amount to offset the costs to individuals.

In either case, you can only deduct the actual portion of the premiums that you pay. There are rules and limitations to this as well, which the next two sections will answer.

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S Corporations And The Aca

The ACA states that S corporations with 50 or more employees must provide group health insurance plans instead of reimbursing employees for individual health coverage. However, the ACA offers an option for S corporations with fewer than 50 full-time employees.Small employers can set up Qualified Small Employer Health Reimbursement Arrangements, or QSEHRAs, which allow the business to reimburse employees’ qualified medical costs in lieu of providing a group health plan. The owner can claim the reimbursement costs as a self-employed medical insurance deduction.While QSEHRAs may match the needs of many small employers, they include numerous terms and conditions. When considering options, a business may find that a group plan offers a more simplified approach.

Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Is Health Insurance Tax Deductible For Self Employed Workers A Guide To Writing Off Insurance Costs

  • Insurance
  • Is Health Insurance Tax Deductible for Self Employed Workers? A Guide to Writing Off Insurance Costs
  • Self-employed people have to pay for individual and family health care plans out of pocket. Because of that big financial burden, health insurance is tax deductible for self-employed workers under the Affordable Care Act. The self-employed health insurance deduction can help freelancers and entrepreneurs better afford the cost of health insurance and save money on their income tax return.

    These topics cover the details of the self-employed health insurance deduction and how to claim it:

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    Medical Expense Deductions For The Self

    There is an exception made to the 7.5% rule for individuals who run their own businesses. Among the many other tax deductions and benefits that self-employed individuals can claim, youre allowed to deduct the entirety of your premium payments from your adjusted gross income, regardless of if you itemize your deductions. However, you may be precluded from this deduction if you are:

    • Eligible to participate in another employers plan and elect not to
    • Self-employed, but you have another job that offers a health plan
    • Eligible to receive coverage through a spouses employer-sponsored plan.

    There are also limitations imposed on self-employed individuals based on the amount of their business income. In any given year, a self-employed person cannot deduct more than the amount of income they generate through their business operations.

    Individuals who operate more than one business can designate only one of them as the health insurance plan sponsor you cannot add up the income generated by multiple companies in order to claim the maximum deduction. In the case of self-employed persons, it may be in their best interest to choose their most profitable business as the plan sponsor in order to increase their potential amount of tax relief.

    Health Insurance Deductibles Vs Dental Insurance Deductibles

    Health insurance deductibles are like dental insurance deductibles. Health insurance deductibles usually reset annually. The deductible is the dollar amount a policyholder is responsible to pay for covered health care services before the health insurance company starts to pay.

    Medical insurance deductibles are typically higher than dental insurance deductibles. High-deductible health plans are becoming increasingly common, with the average deductible at $1,491 for individuals and $2,788 for families¹.

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    What About Hsa Withdrawals

    If you have a Health Savings Account and you either lost your job or retired, dont worry your savings can be deducted if you use them to pay your healthcare premiums, like with COBRA. Even after your COBRA eligibility runs out, as long as you use your health savings account for medical expenses, you can deduct it from your taxes.

    Important: If you withdraw funds from your HSA for anything besides medical expenses, youll have to count it as taxable income and pay a 20% penalty on top. The penalty is withdrawn if youre 65 or older or disabled.

    How Can I Save Time


    Time is precious when you’re running your own business. It helps to choose a plan with a customized, easy-to-use online website and mobile app, so you can manage your health whenever, wherever you are. Get health information, find in-network providers, pay your health insurance premiums, view your health care claims, and print temporary ID cards.

    And when you have a health issue on your mind, you want answers. It helps to have a health information line to call. Talk to a nurse 24/7 to get information and help finding answers to your health-related questions.

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    How Do I Claim The Self

    Unlike other tax deductions for self-employed people, the self-employed health insurance deduction isnt taken on Schedule C or on a business return. Because its an adjustment to income, you claim it on Schedule 1 attached to your Form 1040 federal income tax return.

    The Instructions for Form 1040 include a worksheet to help you calculate your deduction.

    Health Insurance Premiums And Total Household Resources

    Some qualified paid health insurance premiums may be deducted from income when calculating the homestead property tax and other credits allowed on the Michigan income tax return.


    Pre-Tax Deduction An amount excluded from income tax. Pre-tax deductions reduce your taxable income. They are deducted from your income before taxes, so you are not taxed on that money.

    Post-Tax Deduction An amount deducted after the tax is deducted. Post-tax deductions do not reduce your federal, State and Medicare tax liability. They are deducted from your income after taxes, so you are taxed on that money.

    Total Household Resources Total household resources includes all income received by all household members during the year, including income that might be exempt from adjusted gross income. Net losses from business activity may not be used to reduce total household resources. For a listing of income sources to include in total household resources, view Income and Deductible Items .


    Post-tax premiums paid for any of the following types of health insurance plans may be deducted to compute applicable credits:

  • Medical Insurance
  • Automobile Insurance Premiums for medical coverage
  • Post-tax Medicare premiums that are paid out of your pocket may be deducted to compute applicable credits. This applies to the following types of coverage:

  • Medicare Part A Hospital Insurance
  • Medicare Part B Medical Insurance
  • Medicare Part C Medicare Advantage Program
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    What Policies Are Eligible

    The whole cost of premiums paid for medicinal protection dental protection. And long haul care protection are deductible for approaches that spread you. Your mate your wards or grown-up kids who have not arrived at the age 27 as of the most recent day of the expense year. You can deduct these premiums also. The arrangement can be for the sake of your business in the event that you dont work under your very own name.

    Are You Interested In Cosmetic Procedures Such As Braces Or Teeth Whitening

    Self Employed Health Insurance Deduction

    If you are looking for a dental plan to cover a cosmetic procedure, it might be hard to find. Cosmetic procedures are usually not covered by insurance, and if they are, the plan itself may not be a low cost dental plan. Keep in mind that if the plan doesnt cover certain procedures you need or want, youll have to pay for these costs out of pocket.

    There is no universal answer as to whether or not you should buy dental insuranceall you can do is decide what will be the best low-cost dental insurance for you. You can also read about the pros and cons of being covered, and whether or not dental insurance is worth the cost.

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    Is The Money Withheld For Premiums Pre Or Post

    Some employers take the money out of your pay for health insurance premiums before it is subject to income tax. In this case, you will not be able to use any portion for a tax deduction. This is because you have already been relieved of taxation. A secondary tax benefit for the same money would not make any sense.

    Designating Your Plan Sponsor

    If you qualify, you get the health insurance deduction whether you purchase your health insurance policy as an individual or have your business obtain it. If you purchase your health insurance plan in the name of one of your businesses, that business will be the sponsor. However, the IRS says you may purchase your health coverage in your own name and still get the self-employed health insurance deduction. This may be advantageous because it allows you to pick which of your businesses will be the sponsor at the start of each year. Obviously, you should pick the business you think will earn the most money that year.

    Moreover, if you have more than one business, you can have one purchase medical insurance and the other purchase dental insurance and deduct 100% of the premiums for each policy, subject to the income limits discussed above. This will be helpful if no single business earns enough income for you to deduct both policies through one business.

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    How Can I Pay For Medical Expenses

    You have three options to pay for your medical expenses:

    1. Traditional health and dental insurance

    You pay a monthly or quarterly premium in exchange for coverage. Quite often thisoption results in a feeling of not enough coverage for what Im paying for. There are many exclusions, especially with dental and vision. Insurance can be complex, costly, and restrictive.

    2. No insurance / out-of-pocket

    Many small business owners dont have health insurance because its too expensive and the coverage is poor. This means they have no plan and they pay for their medical expenses out of pocket. Dont feel bad if your in this situation its actually more cost effective than having insurance.

    3. Health Spending Account

    The cost effective alternative to insurance and paying for medical expenses out ofpocket.

    Itemize Your Healthcare Expenses

    What You Need to Know About the Self

    Any copay or complete pay made to see a doctor qualifies as a deductible expense. Medications, eyeglasses, mobility aids and many other items qualify as well. The problem with using Form 1040, Schedule A to itemize is that the amount must be greater than 10 percent of your AGI. It is difficult to reach any tax deduction amount unless you have had a busy year servicing medical needs.

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    Can I Qualify For Both The Premium Deduction And A Premium Tax Credit Offered Through The Affordable Care Act

    The self-employed health insurance deduction and premium tax creditcan work together. If you do qualify for both, remember this key rule: Your combined insurance premium deductions and premium credits cannot be more than your total eligible insurance premiums.

    Computing these deductions can be a complex process. To help navigate the many options and requirements, the IRS offers worksheets and instructions for two calculation methods simplified and iterative. The worksheets are not required but may provide useful information.

    Below is an example of a simplified calculation. This sample is based on a family of four with a starting household income of $82,425 and total insurance premiums of $14,000. In this scenario, the family is eligible for a premium tax credit but took no advance premium payments.

    Step 1: Calculate the household income using a premium deduction

    Subtracting the $14,000 in premiums from the starting income of $82,425 leaves a household income of $68,425, which is 291% of the federal poverty level for a family of four. The 291% FPL translates to a rate of 9.24% for calculating the premium tax credit.

    Step 2: Determine the initial premium tax credit based on Step 1

    Multiply the household income of $68,425 by 0.0924 for a premium tax credit of $7,678.

    Step 3: Calculate the allowable premium deduction based on Steps 1 and 2

    Total premiums of $14,000 minus the allowable premium tax credit of $7,678 result in an eligible deduction of $6,322.

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