Schedule 1, Line 17 - Self-Employed Health Insurance (SEHI)

Health insurance premiums, including Medicare and LTC, are allowed as an expense (adjustment) on a Schedule C (self-employment) with a net profit. If a taxpayer doesn’t have a Schedule C, they can’t take the SEHI adjustment.
Note: Health insurance [or LTC] premiums can only be deducted on Schedule C for months when the person wasn’t eligible to participate in any employer-subsidized health (or LTC) plan.

In general, if the taxpayer is itemizing, rather than taking the standard deduction, and if the taxpayer’s total medical expenses exceed the 7.5% of AGI threshold plus the net profit from Schedule C(s), the taxpayer is always better off putting all medical insurance premium costs into Schedule A.

That’s because every dollar on Schedule 1 Line 17 reduces the QBI deduction by 20 cents – and thus affects taxable income by a net of only 80 cents, while every dollar on Schedule A in these circumstances affects taxable income by a full dollar.

If the taxpayer should take the SEHI adjustment, enter all qualifying health and dental insurance premiums on the Schedule C – Expenses page (click “General Expenses” from the Schedule C menu).

TaxSlayer flows these costs to Schedule 1 Line 17, to the extent allowed, and any excess flows automatically to Schedule A medical expenses. (TaxSlayer shows, on the Self-Employed Health Insurance Deduction page, the following: “$[whatever].00 has been entered in the Schedule C for Health Insurance Premiums”).

Starting with tax year 2023, this expense is also shown on Form 7206, Self-Employed Health Insurance Deduction, automatically produced by TaxSlayer. (This form is not searchable within TaxSlayer; entries are only made on the Schedule C – Expenses page.)
If the taxpayer or spouse has paid Medicare premiums, and has a Schedule C, enter those premiums in Schedule C, rather than on the Social Security SSA-1099/RRB-1099 Tier I page.

Similarly, if the taxpayer pays long-term care (LTC) premiums, these should be entered on Schedule C, if there is one, rather than directly on Schedule A.

Note: The deductible amount of long-term care (LTC) premiums depends on age. See Pub 4012 page F-9 for the age ranges and limits, which TaxSlayer enforces.

These costs won’t show on the printed Schedule C.
Don’t use the Self-Employed Health Insurance Deduction page in TaxSlayer. Don’t enter health insurance payments on this page, or net profit figures, or anything else. All fields on this page are for information that is unnecessary, entered elsewhere (on Schedule C), already known to TaxSlayer (net profits), or out-of-scope.

The adjustment amount is limited to the net profit on Schedule C (Schedule 1 Line 3), minus the deductible part of the self-employment tax (Schedule 1 Line 15).

TaxSlayer follows this rule if allowable health insurance premiums are entered in Schedule C. (Any excess entered in Schedule C flows to Schedule A as medical expense.)

Age is not a factor – the taxpayer can be older than 65.
The policy can be in the name of the taxpayer or the spouse, or both, or in the name of the business.
The allowable costs are only for premiums, not for deductibles, co-payments, or other health-related costs.
Allowable premiums include those for dependents under the age of 27 as of year-end, even if the child is not the taxpayer’s dependent.

[Workaround] If there is more than one Schedule C, healthcare costs should be entered on the schedule(s) in such a way as to maximize the SEHI adjustment.

Because the taxpayer can claim a SEHI adjustment for insurance costs for the taxpayer’s spouse, and vice versa, any qualified health insurance cost can be entered on any Schedule C.
The health insurance costs on a given Schedule C can become a SEHI adjustment only to the extent of the net profit for that Schedule C. For example, if a Schedule C has a net profit of $1,000, and health insurance costs of $1,600 are entered via that Schedule C, only $1,000 (minus the adjustment for SE taxes) flows to the SEHI adjustment, even if there is another Schedule C with net profits.

The types of insurance allowable for this deduction include Medicare, Medicare supplemental policies, LTC insurance, and private health insurance.

Private health policies must be in the name of the taxpayer or the business. Even if a taxpayer pays a monthly amount for employer-provided insurance, those costs aren’t deductible because the policy is in the name of the employer, not the taxpayer, and is subsidized by the employer.
Premiums paid for dental and other types of health insurance, such as vision, catastrophic, and travel insurance for medical costs, are deductible, provided that these policies aren’t subsidized by an employer.

While premiums paid by the taxpayer for ACA-subsidized health insurance (“Marketplace” policies) are allowable costs for the SEHI adjustment, they are out-of-scope [though the return itself may not be – see below] for the Tax-Aide program because of the circularity of calculating the amount of insurance premiums that the taxpayer is responsible for. [The subsidy amount (APTC) depends on taxpayer AGI; the AGI is calculated using the SEHI adjustment; and the SEHI adjustment depends on the APTC.]

The taxpayer has three options: not reporting such costs on the tax return (in-scope); claiming such costs on Schedule A, if itemizing (in-scope); or using a paid preparer or tax software, in order to use Marketplace (net) premiums for the SEHI adjustment (out-of-scope).

The value of using a paid preparer or tax software can be easily tested: treat the Marketplace premiums, temporarily, as usable (enter them in Schedule C), after all other insurance premiums are entered, and a refund already calculated, and see if making them usable (temporarily) results in a significant change in what the taxpayer owes or is owed.

If the taxpayer buys unsubsidized health insurance through an ACA marketplace, those premiums are allowable for the SEHI adjustment.

If the Public Safety Officer exclusion is claimed (up to $3,000 of retirement plan distributions can be excluded from taxable income, as discussed on page 43), the insurance costs that are used for exclusion cannot be used for the SEHI adjustment, since they were essentially paid using nontaxable dollars.

Premiums paid for health insurance coverage for a month where the taxpayer could participate in an employer-subsidized health plan are not allowable for this deduction, whether taxpayer participated or not.

But coverage from a former employer doesn’t affect what can be claimed – for example, if the taxpayer has a COBRA policy that is part of a separation package, with part of the policy costs paid by the former employer, the taxpayer can still claim the premiums that s/he paid.

There are two reasons to enter premium costs on Schedule C, rather than directly on the Self-Employed Health Insurance Deduction page [Deductions > Adjustments > ....]

First, on the Schedule C – Expenses page, you can separately enter multiple health insurance costs, and TaxSlayer totals them. This helps ensure that all health insurance premiums were entered and prevents totaling errors.
Second, TaxSlayer requires, on the Self-Employed Health Insurance Deduction page, that the amount of “net profit and any other earned income from the trade or business” be entered. If the total for premiums is entered on the SEHI Deduction page, TaxSlayer uses the net profit figure on that page, rather than the actual Schedule C profit figure, in calculating the amount that goes on Schedule 1 Line 17. This creates another possibility of an error.