Hello,
Good news! As a small-business owner you may qualify to deduct the
amount you pay for medical insurance for you, your spouse, and your
dependents on your individual tax return. The amount of the deduction
depends on when you purchased coverage. For a policy purchased in
2002, you may deduct 70% of your premiums. After 2002, the deduction
increases to 100% of premiums. In To qualify, IRS Publication 525
Business Expenses (Chapter 7) states you must be one of the following:
“*A self-employed individual with a net profit reported on Schedule C,
C-EZ, or F.
*A partner with net earnings from self-employment reported on line 15a
of Schedule K-1 (Form 1065).
*A shareholder owning more than 2% of the outstanding stock of an S
corporation with wages from the corporation reported on Form W-2.”
The IRS stipulates that “the insurance plan must be established under
your business;” however, it does not require you to offer the
insurance to your employees. Furthermore, “you may be allowed this
deduction whether you paid the premiums yourself or your partnership
or S corporation paid them and you included the premium amounts in
your gross income.” The deduction is taken on line 28 of Form 1040.
(Source: http://www.irs.gov/formspubs/page/0,,id%3D12021,00.html)
Please note that if you are covered under any employer subsidized
health plan (including your spouse’s), you cannot take this deduction
during any months you are covered by that plan.
If you don’t meet the above criteria for deducting your insurance
premiums, you may still be able to deduct a portion of your insurance
premiums if they, combined with your other medical and dental
expenses, exceed 7.5% of your adjusted gross income. According to IRS
publication 502, Medical and Dental Expenses, you can deduct “the
amount of your medical and dental expenses that is more than 7.5% of
your adjusted gross income (line 36, Form 1040).” Insurance premiums
qualify as a medical expense. To learn more about qualifies medical
and dental expenses, go to
http://www.irs.gov/formspubs/page/0,,id=11563,00.html.
Additional links:
To learn more about this topic, visit the IRS site at www.irs.gov. and
search under “self-employed health insurance deduction.”
Hope this helps,
Helpful1 |
Clarification of Answer by
helpful1-ga
on
02 Dec 2002 19:29 PST
Hi edinvests,
I'm sorry I didn't understand your question. Now as to the answer,
according to the IRS, health insurance provided to an employee is
considered an "employee benefit" and, as such, is deductible as a
business expense on the “employee benefits” line of your business tax
return. (See Publication 535, Business Expenses, Chapter 2
http://www.irs.gov/formspubs/page/0,,id%3D11990,00.html)
As to you specific question, you need to know what the IRS considers
"health insurance." To find the answer, I went to Publication 15-B,
Employers Tax Guide to Fringe Benefits. There I found that the IRS
broadly defines an accident or health plan as “an arrangement that
provides benefits for your employees, their spouses, and their
dependents in the event of personal injury, or sickness. The plan may
be insured or noninsured and does not need to be in writing.” In
other words, you may set up a self-insured plan, or offer individual
or group coverage through third-party insurers. (See Publication 15-B
at http://www.irs.gov/pub/irs-pdf/p15b.pdf)
Be aware, however, that if you have a self-insured plan that favors
highly compensated employees, you must include all or part of the
amounts you pay to these employees in their wages subject to federal
withholding. If you are an S corporation, the value of health
benefits you provide to 2% or more shareholders must also be included
in their wages subject to income tax withholding.
Hope that answers you question.
Helpful1
|
