Definition

• The health insurance premium deduction has been around for years. You can claim it on Form 1040, line 29. You can use the health insurance premium deduction to help offset the costs of long-term health insurance, dental insurance and medical insurance for you, your spouse and your dependents.
  
  

2010

• You can usually only use the health insurance premium deduction to reduce your income tax liability. In 2010, however, the self-employed could reduce the amount they paid in Social Security self-employment tax in addition to their income tax. Check with your tax adviser to see what the law is in subsequent years.
  
  

Earned Income

• You cannot take the health insurance premium deduction if your business brought in less earned income than what you paid in premiums. You can't show a loss for your business by claiming a deduction for your premiums. Doing so can cause your tax return to be sent back for corrections.
  
  

Health Reimbursement Account

• If you want to set up a health reimbursement account -- an account set up by an employer to reimburse employees for legitimate health care costs -- and you are a sole proprietor, it might be best to do so only if you just have family members as employees, because employers must make HRAs available to all employees. As a sole proprietor, you cannot participate in the HRA yourself. However, if you have a spouse who is an employee, the business can offer an HRA to your spouse and the plan may cover you, even though you are the sole proprietor, under the spouse's HRA. HRAs allow you to deduct health insurance premiums from your self-employment tax liability. You can also deduct uncovered medical expenses from both self-employment and income tax liabilities.
  
  

Eligibility

• Pay attention to when your health care coverage under a former employer ended. You are only eligible to deduct health insurance premiums for the months for which you did not have health insurance and you or your spouse were not eligible for health insurance through an employer.