Self-employed taxpayers can deduct 100% of health, dental, and qualified long-term care insurance premiums for themselves, their spouse, and dependents as an above-the-line deduction, reducing adjusted gross income without itemizing. The deduction cannot exceed the earned income from the business sponsoring the plan and disappears for any month the taxpayer was eligible for an employer-subsidized plan (including a spouse's). It reduces income tax but not self-employment tax. For S corporation owners holding more than 2% of the stock, the mechanics are specific and mandatory: the corporation pays or reimburses the premiums, includes them in box 1 W-2 wages (exempt from FICA), and the owner then takes the above-the-line deduction personally. Skipping the W-2 step forfeits the deduction. Medicare premiums count as qualifying insurance for retirees still running a business.
Self-Employed Health Insurance Deduction
Primary authority: IRC §162(l)
The authority behind it
IRC §162(l)
Every entry in this glossary cites the statute, regulation, or IRS guidance behind it.
Worked example
An S corporation owner's premiums total $14,400. The corporation reimburses them and adds $14,400 to her W-2 box 1; she deducts $14,400 above the line, making the coverage effectively pre-tax for income tax purposes.
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