How Does a Self-Employed Business Owner Deduct Health Insurance Costs

[TeaCake]

MMM's latest post about health insurance makes the following statement, and I'm looking for information on how to do this:

"But also remember that if you’re a high-income business owner, your business can pay for your health insurance with pre-tax money. This cuts your net cost after taxes by 30-40%, making it a subsidized program after all."

Is this strictly a line item on a tax form, or do you have to be a certain type of business to qualify? (I have an LLC.)  I went on the ACA last year and, like MMM, my rate has gone way up dramatically for very little health insurance coverage. I will feel better about this if I know I can deduct the money I spend on it via my business.
Thanks for all info anyone knows!

[bacchi]

It's an above the line deduction.

See line 29 here: https://www.irs.gov/pub/irs-pdf/f1040.pdf

[TeaCake]

Thank you! That seems easy enough. I guess I was skeptical. Can you deduct all costs related to health insurance (ie, premiums plus doctors visits)?

[Rufus.T.Firefly]

Be aware you can only deduct the costs if you have no other available plans at your disposal. For example, if you technically could be on your spouse's plan, you cannot deduct the expense.

[bacchi]

Thank you! That seems easy enough. I guess I was skeptical. Can you deduct all costs related to health insurance (ie, premiums plus doctors visits)?

Only premiums. Other health care expenses go on Schedule A and have to meet the 10% floor.

[I'm a red panda]

Be aware you can only deduct the costs if you have no other available plans at your disposal. For example, if you technically could be on your spouse's plan, you cannot deduct the expense.

Does this run into the FSA issue of your spouse having an FSA counting as you having coverage?  I know I had to get rid of my FSA when my husband got an HSA, because even though he is not on my insurance, my FSA can be considered coverage for him and you cannot contribute to an HSA if you have other coverage.

[jpdx]

I don't see how a FSA would be considered insurance coverage.

P.S. If you have dental insurance, you can deduct those premiums as well!

[sokoloff]

Be aware you can only deduct the costs if you have no other available plans at your disposal. For example, if you technically could be on your spouse's plan, you cannot deduct the expense.

Do you have an IRS (or other) citation for this?

It doesn't seem logical or consistent with other policies.

[I'm a red panda]

I don't see how a FSA would be considered insurance coverage.

P.S. If you have dental insurance, you can deduct those premiums as well!

https://www.irs.gov/publications/p969
"An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally can’t make contributions to an HSA. "

Even if my husband is not on my insurance, I can submit his expenses to my FSA, which makes him "covered by" my FSA. Therefore, I can't have an FSA. (My work does not offer a limited purpose FSA)


http://www.hsaedge.com/2017/08/17/can-spouses-have-both-an-hsa-and-fsa/

[Rufus.T.Firefly]

Be aware you can only deduct the costs if you have no other available plans at your disposal. For example, if you technically could be on your spouse's plan, you cannot deduct the expense.

Do you have an IRS (or other) citation for this?

It doesn't seem logical or consistent with other policies.

My source was a conversation with my CPA, but I'll look for an IRS citation. I agree it doesn't seem consistent and I was surprised when he told me this.

EDIT: Here it is:

Worksheet 6-A, IRS Pub 535 -

"Enter the total amount paid in 2016 for health insurance coverage...but do not include the following.

Amounts for any month you were eligible to participate in a health plan subsidized by your or your spouse’s employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2016"

[orangepalm]

From your post it sounds like you're above the ACA subsidy threshold so this may not concern you, but keep in mind you can't fully deduct all health insurance premiums if you receive ACA subsidies.

Basically, there's a circular relationship between your MAGI, tax credits and self-employed health insurance deduction. The IRS won't let you have it both ways (get the full deduction and maximize tax credits), so you have to do some "iterative calculations" (or let turbo tax do it for you). See https://www.healthinsurance.org/faqs/my-premium-subsidy-is-dependent-on-my-agi-but-im-self-employed-so-my-agi-is-dependent-on-my-premium-help/

[bacchi]

EDIT: Here it is:

Worksheet 6-A, IRS Pub 535 -

"Enter the total amount paid in 2016 for health insurance coverage...but do not include the following.

Amounts for any month you were eligible to participate in a health plan subsidized by your or your spouse’s employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2016"

If you're eligible to participate but not at a subsidized rate, then it seems an HSA passes muster.

There's probably a letter of determination that discusses this.

[DavidAnnArbor]

You become an S Corporation, and you have your company pay you a salary, part of which, there is employer paid for health insurance, which is a deduction for the company. Consequently there are no payroll taxes or any taxes paid for the portion of that income that is devoted to the cost of the health insurance.
Your company will be required to file a 1120S tax return. You will also need to pay for FUTA/SUTA payroll taxes, and you'll have filing requirements for payroll.

[TeaCake]

Thanks for all the responses. I am indeed not qualified for an ACA credits (hence really high premiums) and not eligible for any other employer-sponsored plan either. The last response mentions that I should become an S Corp, but as I read the information here, I can still deduct the premiums on my tax return with an LLC. Each year I consider becoming an S Corp and then don't, so at the moment am not in this situation. Again, thank you MMM community for your info here.