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The Self-Employed Health Insurance Deduction is a Wonderful Thing!
Can this provider deduct her other medical expenses, too?

A family child care provider writes:

> I have a question regarding my health cares expenses. I pay premiums for Kaiser health coverage, but that does not cover chiropractor care, which I pay from my pocket. Can I deduct that from my income tax, as well as the premiums?

As a self-employed person, you are allowed to deduct health insurance premiums on the front of your federal income tax return as an adjustment to income. This is called the self-employed health insurance deduction, which you'll find around about line 29 on your Form 1040. You can deduct the cost of health insurance premiums paid for yourself, your spouse (if filing a jointly), dependents listed on your tax return, and non-dependent children under age 27.

You do have to meet a couple of tests first, however.

...

First of all, you must NOT be eligible for employer-provided health coverage, either through your own job, your spouse's job, or COBRA coverage. I have some clients who are eligible for a company plan through their spouse, but decided not to use it (because of the cost or other factors) and acquired their own health insurance policy instead. Unfortunately, these folks cannot take advantage of the self-employed health insurance deduction.

Second of all, you must show a Net Profit on your business Schedule C. To fully deduct your health insurance premiums, your profit must be somewhat higher than the insurance cost. Otherwise, your deduction may be limited. (Refer to instructions in the Form 1040 Booklet for further information.)

You cannot include any other medical costs on the front of your tax return with your medical premiums. Other out-of-pocket medical costs MAY be deductible, but there are couple of big hurdles to overcome first .

Number one, those additional medical costs (not counting your insurance premiums) must generally be quite high to make a difference. The total cost must come to more than 10% of your adjusted gross income, which is found at the bottom of page one of your Form 1040. This is not such a hurdle if your income is low.

Number two, you must itemize your deductions in the first section of Schedule A. If the standard deduction for the year is higher than your total itemized deductions, itemizing doesn't make any sense.

I only rarely prepare a tax return for the client who actually saves money because of a medical expense deduction. This underscores the great value of the self-employed health insurance deduction. I am very thankful for it!


Last updated 27 November 2013

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Posted on 2011-10-13 00:46:14

 
 
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© 2010, All Rights Reserved Alison T. Jacks / Family Child Care Taxes

Alison T. Jacks is an Enrolled Agent specializing in tax preparation and payroll services for California family child care providers. A graduate of the University of California, Berkeley, she is dedicated to effective client communication and attention to detail. Alison has a diverse clientele, but since 2007, she has been accepting child care provider clients only. The FCC Payroll Service was launched in 2010 to meet the needs of preschool and day care employers.

Alison is located in San Francisco East Bay City of Fremont, but she works with clients living throughout Central, Southern, and Northern California. She is a member of the National Association of Tax Professionals.

Website by Cooksey-Talbott Studio.

Special thanks to Cooksey-Talbott for his photographs of the Fremont Hills.