If you work for yourself, you may be wondering if you can deduct your health insurance premiums and your HSA contributions.
Self-employed people have some tax advantages that those who work for others do not. One of these is the ability to deduct the cost of health insurance if you meet the criteria spelled out by the Internal Revenue Service. When you meet those standards, you are able to deduct the amount of your health insurance premiums for you and your dependents, regardless of the type of health insurance you choose.
Qualifying to Deduct Health Insurance Premiums
The instructions for IRS Form 1040 lay out the criteria necessary to deduct your health insurance premiums. If you are self-employed, but your spouse works for an employer through which you are eligible for group health insurance benefits, your health insurance premiums will not be deductible. If you have any question about whether or not your health insurance premiums are tax-deductible, consult an accountant who specializes in working with the self-employed.
Health Savings Accounts
Health savings accounts, or HSAs, are savings accounts that are permitted when you choose a qualified high-deductible health insurance plan. Qualifying high-deductible plans meet the criteria set forth by the Internal Revenue Service. Every year, they establish the permitted deductible range for qualifying plans, as well as the amount of money that can be contributed to an HSA on a tax-deductible basis. Funds in an HSA that are used for qualifying medical expenses are withdrawn tax-free and can carry over from year to year.
Health Insurance Plan Selection
If you are self-employed and choose a qualifying high-deductible health insurance plan for you and your dependents, then you can deduct both the health insurance premiums and the amount contributed into your HSA. Most HSA-qualified plans require you to pay most of your medical costs up-front until the deductible is met. Some notable exceptions to this are preventive care and childhood immunizations. IRS Publication 969 details the services that may be paid by the insurance company before the deductible is met; however, your insurance policy will list the specific services that are covered in the plan that you choose.
Considerations
If you are in good health and have few medical expenses, you might consider purchasing a health insurance policy with a higher deductible to keep your premium costs down. Since funds in your HSA can roll over from one year to the next, you can continue to put money into your HSA to cover a higher deductible should the need arise. Like an IRA, you can contribute to an HSA until the federal income tax filing deadline, or the date you file your income tax return (whichever is earlier), and apply it to the prior year.
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