If you’re a self-employed therapist, you’re on the line for your own medical insurance premiums. The good news is that they’re tax deductible.
While you may not enjoy health coverage from an employer’s benefits package, you can offset the cost of health insurance by reporting it on your tax return. Technically, it’s an adjustment to your gross income, not a deduction—but it still lowers your tax bill (also known as your “tax liability”).
Here’s everything you need to know about deducting health insurance premiums when you’re a therapist.
Can self-employed therapists deduct health insurance premiums on their tax returns?
As a self-employed therapist, you can report the cost of health insurance premiums you pay on your tax return, and it will lower your tax bill.
But it isn’t technically a deduction—it’s an adjustment to gross income, which is reported on a different part of your tax return.
Adjustments to gross income used to be called “above the line deductions” because they appeared on the first page of Form 1040. The tax forms changed in 2017, so “above the line” isn’t really accurate, but some people still use the term. For the sake of brevity, this article sometimes refers to the health insurance premium adjustment as a “deduction.”
A quick breakdown:
- Itemized expenses or the standard deduction are personal deductions, and available to all taxpayers. You claim them on Schedule A of Form 1040.
- Business expenses can only be deducted by those who report self-employment income. They’re reported on Schedule C of Form 1040.
- Adjustments to gross income reduce your gross income, and only specific expenses apply. After they’ve been applied, other deductions come into effect.
Considered as a whole, adjustments to gross income encompass a grab bag of expenses, including (but not limited to):
- Student loan interest
- Moving expenses for members of the armed forces
- IRA contributions
- Educator expenses
- Tuition and education fees
- Certain self-employment expenses, including health insurance premiums
Before you go and list health insurance premiums on your tax return, however, it’s important to make sure you qualify for the deduction.
Who qualifies for the health insurance premium deduction?
To qualify for the health insurance premium deduction, you must:
- Pay your own health insurance premiums
- Earn self-employment income
- Have no access to any other health insurance coverage (e.g. from an employer or your spouse’s employer)
The cost of health insurance premiums is calculated on a month-by-month basis. That’s important if, during the course of the year, you go from being employed by someone else (who provides health insurance) to becoming self-employed (and paying your own insurance premium).
Example: You worked for another therapy practice for the first three months of the year, and received health insurance coverage from them. In April, you quit the job and became self-employed. At the same time that you lost health insurance coverage from your employer, you started paying your own health insurance premiums as a self-employed person. When calculating your health insurance premium expense on your taxes, you’ll add up the premiums you paid from April through December (nine months). You will not include premiums for the three months when you were employed.
Deducting health insurance premiums for spouses and children
If you pay health insurance premiums for your spouses and children, you can deduct the cost at the same time you deduct your health insurance premiums as a self-employed person.
For your spouse to qualify, they must not have access to health insurance coverage from an employer or any other institution.
For your child to qualify, they must be under the age of 27 at the end of the tax year for which you’re making the deduction. They do not need to be your dependent. Like your spouse, they must not have access to health insurance coverage from an employer or any other institution. Note that student unions typically offer members health insurance coverage.
How to claim the health insurance premium deduction on your tax return as a therapist
To claim health insurance premiums, include Schedule 1, Additional Income and Adjustments to Income, with Form 1040 when you file your taxes.
You list the total cost of health insurance premiums for the year on Line 17 (Section II).
Your total adjustments to income on Schedule 1 are totaled on Line 26. You report this amount on Line 10 of Form 1040. It’s subtracted from Line 9 (your total income) to get your adjusted gross income (Line 11).
If this is your first time filing taxes as a self-employed therapist, it’s highly recommended you hire an accountant to help you. Not only will they help you avoid making errors, but they may be able to identify more ways you can reduce your tax burden.
Deducting long term care as a self-employed therapist
If you pay insurance premiums for long term care—either for yourself, your spouse, or your child—you can write it off on Schedule 1 of Form 1040 in addition to regular health insurance premiums.
However, there’s a limit to how much you can deduct each year. The amount changes from one tax year to the next. Check the IRS page for eligible long term care premium limits to see the amounts year-by-year.
Deducting health insurance premiums vs. medical expenses
In addition to health insurance premiums, you can deduct the cost of medical care not covered by insurance. However, this is a separate deduction, and reported on Schedule A of Form 1040.
To get technical (again), the health insurance premium deduction isn’t really a deduction—it’s an adjustment to your gross income. The cost of other medical expenses, however, is a deduction, and listed along with other itemized deductions on Schedule A.
You don’t need to be self-employed to deduct medical expenses, but since this is an itemized deduction, it’s only available so long as you do not claim the standard deduction.
One important limit to the deduction: It only applies to medical expenses in excess of 7.5% of your adjusted gross income (AGI).
Example: Your AGI is $100,000. You paid $10,000 in medical expenses over the course of the year. Since 7.5% of $100,000 is $7,500, you may deduct only $2,500 in medical expenses on your tax return (since $10,000 - 7,500 = $2,500).
The IRS page for Topic No. 502, Medical and Dental Expenses, lists expenses covered by this deduction, and provides more details on claiming it.
For a deeper dive into business tax deductions, check out our complete list of tax deductions for therapists.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
Bryce Warnes is a West Coast writer specializing in small business finances.