Self Employed Health Insurance (SEHI)
If you are like millions of Americans that own and operate a small business, purchasing health insurance for yourself and your family can be costly. The good news is that you may be entitled to a special tax deduction which will reduce your taxes and the overall cost of health insurance.
The Self-Employed Health Insurance (SEHI) deduction can be claimed by certain small business owners on their individual 1040 income tax returns to reduce their taxes. SEHI is an “above-the-line” deduction that provides greater tax benefits than claiming healthcare costs as an Itemized Deduction on Schedule A.
A. All qualifying health insurance premiums paid can be deducted as Self-Employed Health Insurance. These premiums include medical, vision, dental, prescription, Medicare (Parts A, B, C and D), long-term care and any other health insurance allowed by the IRS. There are certain conditions that must be met as described later in this article.
A. Individuals that report a net profit on Schedule C (sole proprietorship) or Schedule F (farm income) may claim the SEHI deduction. In addition, individuals who are a general partner, a limited partner receiving guaranteed payments, or an S-Corporation shareholder owning more than 2% of the outstanding stock with W-2 wages from the S-Corp are also eligible.
A. Premiums paid for the business owner and spouse plus dependents and any nondependent child under age 27 at the end of the year can be deducted.
A. The business owner is not allowed to claim the SEHI deduction if he or she was eligible to participate in an employer-sponsored subsidized health plan. An employer is the regular employer of the business owner or the spouse’s employer. A subsidized plan is one in which the employer pays a portion of the premium.
A. Yes. The deduction is allowed for any month when access to an employer subsidized plan was not available.
A. Yes. In the case of an S-Corporation, the S-Corporation must pay the premium directly or reimburse the shareholder. In addition, the cost of premium must be included in Box 1 of the shareholder’s W-2.
A. It depends. If the partnership pays the premium directly or reimburses the partner, the health insurance premium must be reported on Schedule K-1. If the partner pays the premium directly and does not receive a reimbursement from the partner, there are no special reporting requirements.
At Jeffrey L. Jackson CPA, we work with our small business clients to help them navigate the complex health insurance rules and reduce their taxes by maximizing deductions in accordance with the tax code.
We offer a full range of accounting, tax, and payroll services geared for 1-person S-Corporations and other small businesses. Call us today at (678) 919-1250 to discuss how we can help you save money on your taxes.