Changes in Self-Employed Health Insurance Deductions

March 2, 2011

As a result of the changes in self-employed health insurance regulations, there are a number of benefits that are worth noting. These apply to self-employed individuals including partners in partnerships and more than 2% shareholders S corporations.  

Self-employed individuals will be able to deduct their health insurance premiums as a business expense that reduces their self-employment tax and their income tax for the year 2010 only. In the past, a self employed individual's health insurance costs were deductible for income tax purposes but were not deductible in determining net earnings from self employment. 

Another change applies to a child of a taxpayer who has not reached the age of 27 as of December 31, 2010. In the past, a self employed individual could only deduct an above the line deduction the health insurance of a child qualifying as a dependent. Now, the health insurance paid for a child who is not a dependent for tax purposes can be deducted against net earnings from self employment. For a child who turned 27, the deduction is still available for premiums paid during the other months of the year when the child was 26.

A self-employed individual receiving Social Security can also now deduct the Medicare health insurance premiums withheld by the Social Security Administration against self- employment income. Previously, such premiums could not be deducted as an above the line deduction by self-employed taxpayers because they were not paid under a health insurance plan established by the taxpayer.

For more information on these and other healthcare related tax issues, please contact your Perelson Weiner partner.

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