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Self Employment - Health Insurance Deduction
1

Per the IRS Instructions for Form 1040, starting on page 85:

Line 16
Self-Employed Health Insurance Deduction

You may be able to deduct the amount you paid for health insurance for yourself, your spouse, and your dependents. The insurance also can cover your child who was under age 27 at the end of 2019, even if the child wasn't your dependent. A child includes your son, daughter, stepchild, adopted child, or foster child (defined in Who Qualifies as Your Dependent in the Instructions for Forms 1040 and 1040-SR).

One of the following statements must be true.

  • You were self-employed and had a net profit for the year reported on Schedule C or F.
  • You were a partner with net earnings from self-employment.
  • You used one of the optional methods to figure your net earnings from self-employment on Schedule SE.
  • You received wages in 2019 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2.

The insurance plan must be established under your business. Your personal services must have been a material income-producing factor in the business. If you are filing Schedule C or F, the policy can be either in your name or in the name of the business.

If you are a partner, the policy can be either in your name or in the name of the partnership. You can either pay the premiums yourself or your partnership can pay them and report them as guaranteed payments. If the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premiums as guaranteed payments.

If you are a more-than-2% shareholder in an S corporation, the policy can be either in your name or in the name of the S corporation. You can either pay the premiums yourself or the S corporation can pay them and report them as wages. If the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you. You can deduct the premiums only if the S corporation reports the premiums paid or reimbursed as wages in box 1 of your Form W-2 in 2019 and you also report the premium payments or reimbursements as wages on Form 1040 or 1040-SR, line 1.

But if you also were eligible to participate in any subsidized health plan maintained by your or your spouse's employer for any month or part of a month in 2019, amounts paid for health insurance coverage for that month can't be used to figure the deduction. Also, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2019, don’t use amounts paid for coverage for that month to figure the deduction.

CAUTION! A qualified small employer health reimbursement arrangement (QSEHRA) is considered to be a subsidized health plan maintained by an employer.

Example. If you were eligible to participate in a subsidized health plan maintained by your spouse's employer from September 30 through December 31, you can't use amounts paid for health insurance coverage for September through December to figure your deduction.

Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer can't be used to figure the deduction.

Please refer to IRS Publication 535 Business Expenses for additional information.

To enter the self-employed health insurance deduction information within your TaxAct® 1040 return (Online or Desktop), use the instructions below that apply to your situation.

Schedule C Statutory Employee

  1. Click Federal. On smaller devices, click in the upper left-hand corner, then choose Federal.
  2. Click Business Income in the Federal Quick Q&A Topics menu to expand the category, then click Income and expense for Statutory Employees
  3. Click Review
  4. Click Continue or No until you reach the screen titled Business Income - Income.
  5. Click Expenses.
  6. Click Continue or No until you reach teh screen titled Business Income - SE Health Insurance and click Yes
  7. The program will proceed with the interview questions for you to enter the appropriate information

Schedule C

  1. Click Federal. On smaller devices, click in the upper left-hand corner, then choose Federal.
  2. Click Business Income in the Federal Quick Q&A Topics menu to expand the category, then click Business income or loss from a sole proprietorship
  3. Click +Add Federal Schedule C to create a new copy of Schedule C, or click Review to use a copy already created
  4. Click Continue or No until you reach a screen titled Would you like to complete the self-employed health insurance deduction worksheet for this business? and click Yes
  5. The program will proceed with the interview questions for you to enter the appropriate information

Schedule F

  1. Click Federal. On smaller devices, click in the upper left-hand corner, then choose Federal.
  2. Click Business Income in the Federal Quick Q&A Topics menu to expand the category, then click Farming income or loss
  3. Click +Add Schedule F to create a new copy of Schedule F, or click Review to use a copy already created
  4. Continue to the screen titled Farm Income - SE Health Insurance and click Yes (Note: A number of screens appear before this. To go directly to the health insurance deduction information, click Continue or No until you reach this screen.)
  5. The program will proceed with the interview questions for you to enter the appropriate information

Partnership

  1. Click Federal. On smaller devices, click in the upper left-hand corner, then choose Federal.
  2. Click Business Income in the Federal Quick Q&A Topics menu to expand the category and then click Partnership income (Form 1065 Schedule K-1)
  3. Click +Add Partnership Schedule K-1 to create a new copy of the form or click Review to review a form already created 
  4. Click Continue or No until you reach the screen titled Partnership - Schedule K-1 Information
  5. Check the box for Box 13-Other deductions, and then click Continue
  6. Continue through the interview questions, and click Yes on the screen titled Partnership - Other Deductions
  7. Click Continue until you reach the screen titled Partnership - Other Deductions - Codes K-O and enter the amount from Box 13M-Health insurance premiums (Amounts paid for medical insurance)
  8. Click Continue or No until you reach the screen titled Partnership - Self-Employed Health Insurance, and click Yes
  9. The program will proceed with the interview questions for you to enter the appropriate information

S-Corporation

  1. Click Federal. On smaller devices, click in the upper left-hand corner, then choose Federal.
  2. Click Business Income in the Federal Quick Q&A Topics menu to expand the category, then click S-Corporation income (Form 1120S Schedule K-1)
  3. Click +Add S Corporation Schedule K-1 to create a new copy of Schedule K-1, or click Review to use a copy already created
  4. Click Continue or No until you reach the screen titled S-Corporation - Self Employed Health Insurance and click Yes
  5. The program will proceed with the interview questions for you to enter the appropriate information

S-Corporation (No Schedule K-1 received)

  1. Click Federal. On smaller devices, click in the upper left-hand corner, then choose Federal.
  2. Click Wages and Salaries in the Federal Quick Q&A Topics menu  to expand the category, then click Wage income reported on Form W-2
  3. Click +Add Form W-2 to create a new copy of Form W-2, or click Review to use a copy already created
  4. Enter your employer's EIN and then click Continue
  5. Enter your employer's information and then click Continue
  6. In the Box 14 section, Click the the box next to "Yes, there is something in Box 14" and then click Continue. 
  7. Enter the description and amount from your W-2 into the fields on the W-2: Enter your information from Box 14 screen.