Self-Employed Health Insurance Deduction

The term Self-employed Health Insurance Deduction is a tax incentive given to those individuals who are self-employed and have private health insurance plans. In this case, self-employed persons can deduct part of their health insurance premiums from their taxable income which consequently helps reduce their taxable income.

Example of Self-Employed Health Insurance Deduction

A freelance graphic designer functions as an independent contractor and buys individual health insurance from a private insurance company. The designer spends a monthly premium for the health insurance policy to insure the policyholder along with their family members.

At the end of the tax year, when preparing their annual tax return, the designer realizes that they are qualified to take the health insurance deduction of the self-employed. At the year's end, they collect the records of their health insurance premiums paid for the year such as statements and receipts from the insurer.

When the graphic designer files their tax return, they report their self-employment income and determine the part of their health insurance premiums that qualify as the deduction. Through the subtraction of these premiums from their taxable income, the designer ultimately decreases their taxable income, leading to tax savings for that year.