Self-Employed? You May Be Able to Deduct Your Medicare Premiums

If you're self-employed and paying Medicare premiums, you may be able to deduct those premiums on your federal tax return — and you don't have to itemize your deductions to do it. Medicare premiums paid by a self-employed individual can generally be included as part of the self-employed health insurance deduction on Schedule 1 of Form 1040. There is an important limitation, though: the deduction can't be more than the net profit from your business.

What About Partners and LLC Members?

The deduction can also apply to partners and members of an LLC who are treated as self-employed, as long as certain requirements are met. For example, the business generally needs to reimburse the individual for the health insurance premiums and report the amount as a guaranteed payment that is included in the individual's taxable income.

What About S Corporation Shareholders?

There are also special rules for S corporation shareholders who own more than 2% of the company. If the shareholder pays the Medicare premiums and the S corporation reimburses them, the premiums generally need to be included as wages on the shareholder's W-2. The shareholder may then be able to claim the self-employed health insurance deduction if the other requirements are met.

The Bottom Line

If you're self-employed and paying Medicare premiums, don't assume you have to itemize your deductions to get a tax benefit. Depending on how your business is structured and how your premiums are paid and reported, you may be able to deduct your Medicare premiums as a self-employed health insurance expense. As always, keeping good records and making sure the premiums are reported correctly is important when claiming this deduction.