Do I Need Self-Employed Health Insurance?

Starting your own business comes with many decisions, including whether and where to buy health insurance for you and your employees. If you are the sole employee, you may be covered through your spouse’s or household partner’s health plan. However, if you’re single or not covered by someone else’s plan, you’ll want to research individual coverage (since you won’t be able to qualify for group coverage). If you have employees, remember that offering health insurance will help you attract potential candidates and retain the employees you have.

While health insurance is not required at the federal level, some states require you to have health insurance to avoid a penalty on your state taxes.

You can find affordable self-employment health insurance on the Health Insurance Exchange or through the Small Business Health Options Program.

You may qualify for the Self Employed Health Insurance Deduction by deducting up to 100% from your health insurance premiums.

Why Should I Get Health Insurance?

Health insurance coverage is no longer required at the federal level, but you may still face a duty, depending on where you live.

California, Massachusetts, New Jersey, Rhode Island, and Vermont penalize state taxes if you don’t have health insurance. Washington, D.C. Residents are also required to purchase health insurance.

Remember that even if your state doesn’t require it, health insurance gives you significant financial protection. If you (or an employee) become seriously ill or injured, loss of productivity due to time off from work as well as medical expenses can bankrupt you and therefore your business.

Financial Protection
Having health insurance protects you and your business from financial distress if you become ill or injured.

What will it cost me?

As a self-employed individual or small business owner, your health insurance costs will depend on many factors, including where you live, your income level, the type of coverage you receive, and the amount you can deduct. How often you use healthcare—and your comfort at risk—can determine how “rich” you need a plan and, accordingly, the cost of that health insurance policy. And if you offer insurance to any employee, your premiums may depend on how many people make up your small group.

The cost also depends on the insurance provider. For example, plans purchased through the Health Insurance Marketplace will likely cost less than purchasing an individual policy directly through a private insurance company. And each insurer offers its own products and sets its own price.

Recruitment Incentive
Offering health insurance to potential employees can be an incentive for them to work for you.

What Are My Self Employed Health Insurance Options?

You have several options for self-employed health insurance. Be sure to compare the various types to find the best health insurance for your needs and budget.

  • Health Care Exchange: Individuals, families, and small businesses can shop for affordable health insurance on the state or federal Health Insurance Marketplace that meets the coverage requirements of the Affordable Care Act (ACA), including pre-existing conditions and preventive care. You can qualify for premium tax credits to lower the monthly costs of these plans.
  • Small Business Health Options Program (STORE): This program helps find employee insurance coverage for businesses with 1-50 full-time employees. If you have up to 25 employees, you may be eligible for the Small Business Health Care Tax Credit to help reduce costs. Not available for sole proprietors or self-employed non-employee owners.
  • Individual coverage: You can purchase an individual health insurance plan directly from a private health insurance company.
  • Coverage through state plans: Some states offer health insurance plans to residents based on income, medical needs, and other conditions. Check with your state to find out if they offer a health insurance program and, if so if you qualify.
  • Small business/small group health plans: For small businesses with fewer than 50 full-time employees, many private insurance companies offer a small group plan that costs less than individual plans.
  • Coverage through spouse/domestic partner: You can participate in this policy if your spouse or domestic partner receives health insurance through an employer.
  • Alternatives for individual coverage: If you are between jobs or insurance plans, you can purchase short-term health insurance that provides basic coverage for 30 to 90 days. If you have health insurance but have lost your insurance because you left an employer to start your own business, you may be eligible to maintain it under COBRA for a certain period of time.

What is Self Employed Health Insurance Deduction?

If you purchase self-employed health insurance, you may be eligible for a special personal tax deduction for the self-employed on your personal federal, state, and local income tax returns. If you qualify, you can withhold 100% of your health insurance premiums (including dental insurance) for yourself, your spouse, and your dependent. However, your deduction cannot exceed your income from your business.

How Do I Qualify for Self Employed Health Insurance Deduction?

To qualify for the self-employed health insurance tax deduction, you must:

  • You do not have any other health insurance coverage, including your entitlement to insurance coverage through your spouse or household partner;
  • Have income from your job. If you don’t have income, you can’t get a deduction.

How Can I Get a Self Employed Health Insurance Deduction?

Your business income and deductions are listed on a Schedule C, but since the self-employed health insurance deduction is a personal deduction, you will need to list it on your IRS 1040 form. If you have questions or are unsure how to apply for the deduction, consult your accountant or tax provider.

What Are Other Ways to Save on Health Insurance?

Self-employed health insurance can be expensive, but you have some options to help lower your premium costs.

  • Affordable Care Act: Under this law, you can receive premium tax credits and extended subsidies to help you pay your self-employment health insurance premiums for coverage you purchase in the state or federal market. To qualify, your household income must be between 100% and 400% of the federal poverty level. For 2021, you may still be eligible for a premium tax credit if your income is above 400% of the federal poverty level.1
  • Medicaid, Tricare, or other public options: There are many state and federal programs that offer help with health insurance costs or offer low-cost or free coverage based on military service (Tricare), income level, disability, or other factors. If you’re just starting a business or have a low income, check what’s on offer in your area.

How Else Can I Save Money If I Own a Small Business?

As a small business owner, you can take advantage of self-employment health insurance discounts through industry organizations. Check with professional groups, unions, and other associations to find out if small group options are available. For example, look at the National Association of Women Executives, the National Self-Employed Association, the Writers Guild of America, and the Freelance Association.

If you hire one or more employees, your business may qualify for smaller group plans that cost less than individual coverage. An insurance broker specializing in small businesses can assist you.

Next steps

Finding affordable self-employed health insurance that meets your healthcare needs takes time and research. Compare all your coverage options, then see if you qualify for any subsidies or deductions on your chosen plan. Your efforts can be rewarded with huge savings that you can invest in growing your business.

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