Premiums for self-employed health insurance

[Garry_NewEngland]

As I understand the IRS code, the total of:  

50% of Social Security

Solo-401K contributions

Health insurance premiums.

Cannot exceed the profit from the business, for that year.

Pease clarify, when I run TurboTax, that limit is not applied on the

"Adjustments to Income".

[Cynthiad66]

There's no dollar limit for the deduction, but it is limited to your net profit from self-employment. In other words, if your business doesn't earn a profit, you can't take the deduction.

Adjustment to Income happens when you enter as follows:

To enter the insurance premiums, you will do as follows:

1. Go to the Business category.
2. Go to the Business Income and Expense subcategory.
3. Choose the option "I'll choose what I work on"
4. On the screen labeled "Let's gather your business info", find the section labeled "Less Common Business Situations".
5. Click start or update next to the line labeled Self-employed Health Insurance.

Self-Employed Health Insurance

[Garry_NewEngland]

Other websites indicate that the SUM TOTAL of "401K+50% of SS + health premiums" cannot exceed

profits from the business.

A topic which needs to be resolved, I believe, as some authorities on this deduction report

that limit.

[VolvoGirl]

I don't understand what 401K and Social Security have to do with it at all.

If your health ins exceeds your net self-employment income it gets split. An amount equal to your net self-employment income goes on Form 1040 Schedule 1 line 17 (to 1040 line 10) and the remainder gets added in to medical expenses on Schedule A.

For Social Security.....

Medicare plan B payments are qualified as Self-employed medical insurance premiums and should be entered under Business instead of in the Social Security Benefits entry area.  So go back and take it off your SSA-1099 entry.

[Garry_NewEngland]

As a self-employed person, I do enter those premium as part of business expenses.

(Also, I use the standard deduction, so I do not file Schedule A).

The main issue, that I can research further, is that on Schedule 1 (Adjustments to Income),

it is my understanding that business profit limits the sum of those 3 deductions.

[DavidD66 · Accepted solution]

You are correct.  If you are self-employed, you must have a net profit from your business in order to take the self-employed health insurance deduction.  Similarly, your contribution to a business retirement plan (e.g. Solo 401(k) or SEP IRA) is limited by your profit from business.  Also, if you don't have any profit, you won't pay any self-employment tax, so you won't have a deduction for 50% of your self-employment tax.  If you have a Solo 401(k), and take a deduction for health insurance, the combined amount of those two items cannot exceed the amount of your business profit.  

[Garry_NewEngland]

Thanks for clarification.  Understanding of the tax code for the self-employed is an

important area, and it helps to have a good knowledge of this topic.