An HR Glossary for HR Terms

Glossary of Human Resources Management and Employee Benefit Terms

Self-Employed Health Insurance Deduction

What Is the Self-Employed Health Insurance Deduction?

The self-employed health insurance deduction is a tax deduction available to certain self-employed individuals. Understanding who qualifies for this deduction can help when determining a fair rate of compensation for self-employed contractors.

Who Qualifies for the Self-Employed Health Insurance Deduction?

The self-employed health insurance deduction applies to any individual who meets the following two conditions:

How Does the Self-Employed Health Insurance Deduction Factor Into Self-Employed Overhead Costs?

Self-employed contractors tend to ask for a higher pay rate than employees. This is due to their self-employment overhead—their financial responsibility to cover the full cost of benefits that employers usually cover for their employees, including medical insurance premiums.

When consulting on a fair pay rate for contract work, estimating these factors helps provide a more accurate idea of the contractor’s true overhead for medical insurance:

Can Business Owners Take the Self-Employed Health Insurance Deduction?

A business owner who receives a "paycheck" or guaranteed payment from certain business entity types, like an LLC or sole proprietorship, may need to pay taxes on any insurance premiums paid by the company on their behalf, as these contributions are treated as individual income. These payments would be reported on the appropriate year-end earning statement, such as Form K-1.