As a self-employed person, you can reduce the amount of money you spend for health care expenses. Your self-employed health insurance premiums are tax-deductible as an adjustment to your income. You do not have to itemize deductions to take advantage of this tax break, which can help you save valuable time and energy during the filing process. Additionally, you may contribute to a health-care savings account under certain circumstances and reduce your taxes by taking allowable deductions for contributions to your HSA.
Self-Employed Health Insurance
Self-employed people can claim a deduction for premiums they pay for health insurance. To claim this deduction, you must not be eligible for coverage under an employer's plan, either your own or a spouse's. Your deduction for health plan premiums also cannot exceed your earned income from the business. You can deduct a portion of your premium for long-term care insurance.
Qualifying for an HSA
To qualify for an HSA, you must have a high-deductible health plan. At the time of publication, the Internal Revenue Service defines a high-deductible plan as one with a deductible of at least $1,350 if you are single and $2,700 for a family plan. In addition, the maximum out-of-pocket expenses for the year must be $6,650 if you are single and $13,300 for a family plan. You cannot be covered under a health plan other than your high-deductible plan.
HSA Contribution and Deduction
A single person covered by a high-deductible plan can contribute up to $3,450 to an HSA account. If you have family coverage under your high-deductible plan, you can contribute up to $6,900 to your account. You can claim a tax deduction for these contributions as an adjustment to income on line 25 of your Form 1040, after completing Form 8889.
Uses for an HSA
You can use the funds from an HSA to pay for any unreimbursed medical expenses that you or a person covered under your high-deductible health plan incurs. This includes doctor's visits or hospital stays, as well as surgical fees. The list of allowed expenses is extensive. You do not have to spend the entire amount of your contribution each year. Any unused balance stays in the account and is available for use in the future. This allows your balance to be maintained in such a way as to ensure that the necessary funds are available in the event of an unexpected medical emergency at any point.
At age 65, you can withdraw money from the HSA to use in retirement for expenses not related to health care. You will owe taxes at this time, but no penalty.