When I first decided to strike out on my own, I was met with shock and surprise after I told my friends and family members. After all, quitting a stable 9-to-5 job for the uncertain waters of freelancing can seem downright crazy to many people. The support eventually came, but there were always a few questions people asked:
“But what are you going to do about health insurance? What about your health insurance premiums?”
It was as if no one in the history of the world had navigated this very issue before. And to be honest, it was new territory for me, too — but I knew it was something I’d have to figure out. Here’s what I’ve learned about freelance health insurance along the way.
Getting Health Insurance As a Freelancer
As it turns out, getting health insurance wasn’t the nightmare I’d imagined it to be. I simply went to Healthcare.gov, filled out an application and reviewed my options. Though it wasn’t open enrollment season, I qualified for the Special Enrollment Period since I was losing health coverage after leaving my 9-to-5.
The health insurance options available were divided into tiers: bronze, silver, gold and platinum. Platinum had the highest premiums and lowest cost when it came to care, while bronze was a bare-bones, emergency-only type of plan. After looking through the choices, I opted for the silver plan: It wasn’t the greatest option, but it was in my budget and helped me sleep easier at night knowing I was covered.
What I didn’t realize at the time was that I could deduct part of my health insurance. While that certainly lessened the pain of paying out-of-pocket for my own health insurance, having this knowledge may have prompted me to opt for a better plan. So, learn from my mistakes and consider your potential health insurance deduction before you decide on a plan.
Deducting Your Health Insurance Premiums
I first discovered that I could deduct my health insurance costs after talking with my accountant, freelance tax expert Eric J. Nisall. He let me know that health insurance premiums aren’t considered business expenses for tax purposes. However, it is possible for freelancers to deduct part of their health insurance costs if they qualify.
I spoke to Nisall to get the scoop on how freelancers can find out if they’re eligible. “You can qualify by having self-employment profits and not being eligible for coverage anywhere else, including on a spouse’s group plan,” he says. In other words, you can’t report a loss on your tax return in order to qualify for this deduction. And the amount that you’re able to deduct for your health insurance premiums can’t be more than your net income. So, for example, if you report a net income of $6,000, but your health insurance premiums are $7,000, you’d only be able to deduct up to $6,000.
And married folks, listen up: If you’re offered health insurance through your spouse’s plan, you’re not eligible for this deduction. “It doesn’t matter if you reject the coverage,” explains Nisall. “As long as you have access to it, you lose out on the SE insurance deduction.” Not only that, but if your spouse has health coverage through their employer, you’re not eligible for the deduction (even if you’re not offered coverage through their plan).
Your eligibility is also determined on a month-by-month basis. For example, I quit my job in July, and I was unable to deduct any health insurance costs from January through July — the period when I still had coverage through my employer. But once I lost that coverage and started paying for my own health insurance, I could deduct the costs from August through December.
If you had health coverage through an employer, were offered coverage through your spouse’s plan or your spouse had coverage through their employer for part of the year, you won’t be able to deduct health insurance premiums for those months.
I Qualify for a Deduction… Now What?
So, you qualify. What’s next? “If you qualify, you can take the self-employed health insurance deduction (medical, dental and long-term care premiums) on page one, line 29 of your 1040, instead of having to itemize,” states Nisall. Just make sure you wait until you have Form 1095-A or 1095-B, which have information about your health coverage and health premiums. Don’t be like me and think that these forms are just more unnecessary pieces of paper — they’re vital to your freelance health insurance plan.
When you know you qualify and have all the information you need, you’ll be ready to make the appropriate tax deductions as you file your quarterly taxes. As always, consider working with a tax professional like I did if you need help. Mine opened my eyes and made sure I didn’t miss out on this super important deduction for freelancers. Whether you’re just starting out or you’ve been in the biz for a while, make sure you’re not leaving money on the table.