skip navigation

Search Help
Navigation Help

Topic Index
ABCDEFGHI
JKLMNOPQR
STUVWXYZ#

Affordable Care Act
Tax Topic Index

International
Tax Topic Index

FAQs
Forms
Publications
Tax Topics

Comments
About Tax Map

IRS.gov Website
Publication 535
taxmap/pubs/p535-023.htm#en_us_publink1000208841

Chapter 6
Insurance(p17)

taxmap/pubs/p535-023.htm#en_us_publink1000272101Introduction

You generally can deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business, or profession. However, you may have to capitalize certain insurance costs under the uniform capitalization rules. For more information, see Capitalized Premiums, later.

taxmap/pubs/p535-023.htm#TXMP741d2c73

Useful items

You may want to see:


Publication
 15-B Employer's Tax Guide to Fringe Benefits
 525 Taxable and Nontaxable Income
 538 Accounting Periods and Methods
 547 Casualties, Disasters, and Thefts
Form (and Instructions)
 1040: U.S. Individual Income Tax Return
See chapter 12 for information about getting publications and forms.
taxmap/pubs/p535-023.htm#en_us_publink1000208842

Deductible Premiums(p17)

rule
You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business.
  1. Insurance that covers fire, storm, theft, accident, or similar losses.
  2. Credit insurance that covers losses from business bad debts.
  3. Group hospitalization and medical insurance for employees, including long-term care insurance.
    1. If a partnership pays accident and health insurance premiums for its partners, it generally can deduct them as guaranteed payments to partners.
    2. If an S corporation pays accident and health insurance premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages subject to federal income tax withholding. See Publication 15-B.
  4. Liability insurance.
  5. Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients.
  6. Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault.
    1. If a partnership pays workers' compensation premiums for its partners, it generally can deduct them as guaranteed payments to partners.
    2. If an S corporation pays workers' compensation premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages.
  7. Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law.
  8. Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness.
  9. Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums.
  10. Life insurance covering your officers and employees if you are not directly or indirectly a beneficiary under the contract.
  11. Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause.
taxmap/pubs/p535-023.htm#en_us_publink1000208843

Self-Employed Health Insurance Deduction(p18)

rule
You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. The insurance can also cover your child who was under age 27 at the end of 2012, even if the child was not your dependent. A child includes your son, daughter, stepchild, adopted child, or foster child. A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.
One of the following statements must be true.
The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business.
Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. For more information, see Form 1040X, Amended U.S. Individual Income Tax Return.
Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction.
Take the deduction on Form 1040, line 29.
taxmap/pubs/p535-023.htm#en_us_publink1000208845

Qualified long-term care insurance.(p18)

rule
You can include premiums paid on a qualified long-term care insurance contract when figuring your deduction. But, for each person covered, you can include only the smaller of the following amounts.
  1. The amount paid for that person.
  2. The amount shown below. Use the person's age at the end of the tax year.
    1. Age 40 or younger–$350
    2. Age 41 to 50–$660
    3. Age 51 to 60–$1,310
    4. Age 61 to 70–$3,500
    5. Age 71 or older–$4,370
taxmap/pubs/p535-023.htm#en_us_publink1000208846
Qualified long-term care insurance contract.(p18)
A qualified long-term care insurance contract is an insurance contract that only provides coverage of qualified long-term care services. The contract must meet all the following requirements.
taxmap/pubs/p535-023.htm#en_us_publink1000208847
Qualified long-term care services.(p18)
Qualified long-term care services are: The services must be required by a chronically ill individual and prescribed by a licensed health care practitioner.
taxmap/pubs/p535-023.htm#en_us_publink1000208848
Chronically ill individual.(p18)
A chronically ill individual is a person who has been certified as one of the following. The certification must have been made by a licensed health care practitioner within the previous 12 months.
taxmap/pubs/p535-023.htm#en_us_publink1000292359
Pencil

Worksheet 6-A. Self-Employed Health Insurance Deduction Worksheet

Note. Use a separate worksheet for each trade or business under which an insurance plan is established.

1.Enter the total amount paid in 2012 for health insurance coverage established under your business for 2012 for you, your spouse, and your dependents. Your insurance can also cover your child who was under age 27 at the end of 2012, even if the child was not your dependent. But do not include the following.
  • Amounts for any month you were eligible to participate in a health plan subsidized by your or your spouse's employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2012.
  • Any amounts paid from retirement plan distributions that were nontaxable because you are a retired public safety officer.
  • Any amounts you included on Form 8885, line 4.
  • Any qualified health insurance premiums you paid to "U.S. Treasury-HCTC."
  • Any health coverage tax credit advance payments shown in box 1 of Form 1099-H.
  • Any payments for qualified long-term care insurance (see line 2)
1.
2.For coverage under a qualified long-term care insurance contract, enter for each person covered the smaller of the following amounts.   
 a)Total payments made for that person during the year.  
 b)The amount shown below. Use the person's age at the end of the tax year.  
   $350—if that person is age 40 or younger   
  $660—if age 41 to 50  
  $1,310—if age 51 to 60  
  $3,500—if age 61 to 70  
  $4,370—if age 71 or older  
  Do not include payments for any month you were eligible to participate in a long-term care insurance plan subsidized by your or your spouse’s employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2012. If more than one person is covered, figure separately the amount to enter for each person. Then enter the total of those amounts 2.
3.Add lines 1 and 23.
4.Enter your net profit* and any other earned income** from the trade or business under which the insurance plan is established. Do not include Conservation Reserve Program payments exempt from self-employment tax. If the business is an S corporation, skip to line 11 4.
5.Enter the total of all net profits* from: Schedule C (Form 1040), line 31; Schedule C-EZ (Form 1040), line 3; Schedule F (Form 1040), line 34; or Schedule K-1 (Form 1065), box 14, code A; plus any other income allocable to the profitable businesses. Do not include Conservation Reserve Program payments exempt from self-employment tax. See the Instructions for Schedule SE (Form 1040). Do not include any net losses shown on these schedules. 5.
6.Divide line 4 by line 56.
7.Multiply Form 1040, line 27, by the percentage on line 67.
8.Subtract line 7 from line 48.
9.Enter the amount, if any, from Form 1040, line 28, attributable to the same trade or business in which the insurance plan is established 9.
10.Subtract line 9 from line 810.
11.Enter your Medicare wages (Form W-2, box 5) from an S corporation in which you are a more-than-2% shareholder and in which the insurance plan is established 11.
12.Enter any amount from Form 2555, line 45, attributable to the amount entered on line 4 or 11 above, or any amount from Form 2555-EZ, line 18, attributable to the amount entered on line 11 above 12.
13.Subtract line 12 from line 10 or 11, whichever applies13.
14.Enter the smaller of line 3 or line 13 here and on Form 1040, line 29. Do not include this amount when figuring any medical expense deduction on Schedule A (Form 1040). 14.
*  If you used either optional method to figure your net earnings from self-employment from any business, do not enter your net profit from the business. Instead, enter the amount attributable to that business from Schedule SE (Form 1040), Section B, line 4b.
* *Earned income includes net earnings and gains from the sale, transfer, or licensing of property you created. However, it does not include capital gain income.
taxmap/pubs/p535-023.htm#en_us_publink1000208849
Benefits received.(p19)
For information on excluding benefits you receive from a long-term care contract from gross income, see Publication 525.
taxmap/pubs/p535-023.htm#en_us_publink1000208850

Other coverage.(p19)

rule
You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you did not actually participate. In addition, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2012, do not use amounts paid for coverage for that month to figure the deduction. These rules are applied separately to plans that provide long-term care insurance and plans that do not provide long-term care insurance. However, any medical insurance payments not deductible on Form 1040, line 29, can be included as medical expenses on Schedule A (Form 1040), Itemized Deductions, if you itemize deductions.
taxmap/pubs/p535-023.htm#en_us_publink1000208851

Effect on itemized deductions.(p19)

rule
Subtract the health insurance deduction from your medical insurance when figuring medical expenses on Schedule A (Form 1040) if you itemize deductions.
taxmap/pubs/p535-023.htm#en_us_publink1000208852

Effect on self-employment tax.(p20)

rule
For tax years beginning before or after 2010, you cannot subtract the self-employed health insurance deduction when figuring net earnings for your self-employment tax from the business under which the insurance plan is established, or considered to be established as discussed earlier. For more information, see Schedule SE (Form 1040).
taxmap/pubs/p535-023.htm#en_us_publink1000208853

How to figure the deduction.(p20)

rule
Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. However, if any of the following apply, you must use Worksheet 6-A in this chapter. If you are claiming the health coverage tax credit, complete Form 8885, Health Coverage Tax Credit, before you figure this deduction.
taxmap/pubs/p535-023.htm#en_us_publink1000208854
Health coverage tax credit.(p20)
You may be able to take this credit only if you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment trade adjustment assistance (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient. Use Form 8885 to figure the amount, if any, of this credit.
When figuring the amount to enter on line 1 of Worksheet 6-A, do not include the following.
taxmap/pubs/p535-023.htm#en_us_publink1000208855
More than one health plan and business.(p20)
If you have more than one health plan during the year and each plan is established under a different business, you must use separate worksheets (Worksheet 6-A) to figure each plan's net earnings limit. Include the premium you paid under each plan on line 1 or line 2 of that separate worksheet and your net profit (or wages) from that business on line 4 (or line 11). For a plan that provides long-term care insurance, the total of the amounts entered for each person on line 2 of all worksheets cannot be more than the appropriate limit shown on line 2 for that person.