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Health insurance for the self-employed

With the full implementation of the Affordable Care Act, the rules have been changed from how they were handled in the past. The changes have come about regarding what name the policy must be under and how the premiums are paid.

In this situation self-employed consists of those that have a sole-proprietorship, have an interest in a partnership that is subject to self-employment tax, or were paid wages as a more than 2% shareholder in an S-corporation.

Sole Proprietor – Since there is no distinction between your personal and business assets, the policy can be in your name or in the name of the business. And the premiums can be paid with either accounts.

Partnership – In partnerships once again the policy can be directly in your name, or it can be part of the partnerships group plan. The premiums can be paid either directly by the partner or from the partnership itself. The one twist is that if the premiums are paid by the partner, the partnership must reimburse the partner and include the premiums as income on the partner’s K-1.

S-Corporation – This is the situation that gets mishandled the most. If you are a 2%+ shareholder, your health insurance MUST be included as compensation on your W-2. While the policy can be in either the shareholder’s name or the company, the premiums have to be paid by the company. They do not have to be directly paid by the company, they can reimburse the shareholder (before the end of the year.) If they are not reported on the W-2, the premiums default to being a regular medical cost deduction subject to the 10% floor on schedule A.

Along with traditional health insurance coverage, Medicare premiums and certain qualified long term care insurance can qualify as Self-Employed Health Insurance.

The long term care has a cap on what is allowed, it is the lower of:

  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–$370
    2. Age 41 to 50–$700
    3. Age 51 to 60–$1,400
    4. Age 61 to 70–$3,720
    5. Age 71 or older–$4,660

Source: IRS Pub 535

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