Healthy Happy Blog

by Richard Smith

Qualifying Health Insurance Plans

If you have self-employment income, and make contributions to either a SEP, SIMPLE, or solo 401(k) retirement plan then you can qualify for this deduction.

Other Qualifications

When you file your tax return, and take a deduction for retirement contributions, you will need to show your self-employment profits on Schedule C or Schedule F. If you do not complete these additional forms the IRS will not consider you self-employed, and you will not be eligible for the retirement contribution deduction.

Claiming the Health Insurance Deduction

To claim the self-employment retirement contribution deduction you will need to include the total amount of your qualifying contributions on Line 28 of your IRS Form 1040. Then, add up all of the deductions you qualify for and include the total on Line 36.

The Self-Employment Tax Deduction

When a taxpayer has federal taxes withheld from their paycheck, their employer is required to send those funds to the IRS and pay an employer tax of the same amount. However, when you are a self-employed taxpayer or own a small business, you have to pay the full 15.3% tax rate. The phrase self-employment tax actually refers to both the Social Security tax (12.4% on the first $106,800 of self-employment income), and a Medicare tax (2.9% on all self-employment income).

Although you have to pay additional taxes as a self-employed taxpayer, you can take a deduction for half of your total self-employment tax payments for the year. In order to qualify for the deduction you must be self-employed, and file an itemized return.

Claiming the Deduction

You can claim the self-employment tax deduction on Line 27 of IRS Form 1040. The total deduction must be exactly half of the amount of self-employment tax listed on Schedule SE and on IRS Form 1040 Line 58.

IRS Regulations

According to the IRS, you can deduct half of your SE tax in figuring your adjusted gross income. This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your SE tax.

28 Feb 2017 author: Richard Smith