Health Insurance Tax Deduction Calculator

No. Under IRC Section 162(l)(4), the self-employed health insurance deduction is explicitly excluded from reducing net earnings from self-employment, so it lowers your federal income tax only, not the Social Security and Medicare portion of self-employment tax. A brief exception existed for tax year 2010 only under the Small Business Jobs Act, but that provision expired and did not carry forward to later years.

Neither of the two rules this calculator applies varies by filing status: the self-employed above-the-line deduction is capped at net self-employment income regardless of how you file, and the 7.5%-of-AGI itemized threshold for employees is the same percentage across Single, Married Filing Jointly, Head of Household, and Married Filing Separately. Filing status affects your tax bracket and other parts of your return, just not this specific deduction's mechanics.

Per IRS Topic No. 502, employees can only deduct the portion of medical expenses -- including health insurance premiums -- that exceeds 7.5% of adjusted gross income, and only if they itemize deductions rather than taking the standard deduction. On an $85,000 income, that threshold alone is $6,375, so unless your household's premiums plus other medical costs clear that bar, itemizing this particular expense won't reduce your taxes at all.

Yes -- it's capped at your net income from the self-employment activity that established the health plan, so a business with little or no net profit in a given year can't deduct more in premiums than it actually earned, even if the premiums themselves cost more. This calculator applies that cap using Annual Gross Income as the ceiling.