Some employees can take advantage of flexible benefit plans to pay insurance premiums before taxes. Individuals who don't have this option end up paying these premiums out of their taxed earnings. Health insurance premiums are tax deductible, but the deduction is limited. Self-employed individuals can deduct the full amount of health insurance premiums as an adjustment to income.
Schedule A Deduction
Individuals can declare all medical expenses, including health insurance premiums, as itemized deductions on Schedule A of Form 1040. However, this deduction may not provide much financial benefit. Your total itemized deductions must be greater than the standard deduction for you to claim them. Medical expenses also are reduced by 10 percent of your adjusted gross income, which decreases the tax deduction amount.
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Deduction for Self-Employed Individuals
Self-employed individuals can deduct the cost of insurance premiums for themselves, their spouse and dependents on Form 1040. However, you only can deduct premiums if your business had a net profit for the year. You also can't take the deduction for any months that you were eligible to receive a health care plan from an employer.