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Publication 535

Chapter 6

What's New(p17)

Self-employed health insurance deduction.(p17)
For tax years beginning after 2010, you cannot deduct any self-employed health insurance deduction you report on Form 1040, line 29, from self-employment earnings.


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.


Useful items

You may want to see:

 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.

Deductible Premiums(p17)

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.

Self-Employed Health Insurance Deduction(p18)

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 2011, 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.

Qualified long-term care insurance.(p18)

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–$340
    2. Age 41 to 50–$640
    3. Age 51 to 60–$1,270
    4. Age 61 to 70–$3,390
    5. Age 71 or older–$4,240
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.
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.
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.
Benefits received.(p18)
For information on excluding benefits you receive from a long-term care contract from gross income, see Publication 525.

Other coverage.(p18)

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 2011, 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.

Effect on itemized deductions.(p18)

Subtract the health insurance deduction from your medical insurance when figuring medical expenses on Schedule A (Form 1040) if you itemize deductions.

Effect on self-employment tax.(p18)

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).

How to figure the deduction.(p18)

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.
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.
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.