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Health Coverage for the Self-Employed

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Health Coverage for the Self-Employed

There’s no doubt about it—health insurance coverage is a big-ticket purchase for self-employeds. It’s all on your nickel—there is no employer in the picture to pick up all or part of the tab.  Moreover, out-of-pocket expenses that are not covered by your health insurance plan add significantly to the cost.

Making Better Choices. Obviously, the choice of a health plan for you or your family is first and foremost a personal decision. Nonetheless, in today’s high-cost health environment, a sound tax strategy can help you acquire the coverage you need and want at the most affordable after-tax cost. Moreover, there are tax-advantaged ways to fill in those gaps between health insurance coverage and the real cost of health care.

As a self-employed, you can deduct 100% of the premiums you pay for health insurance for yourself, your spouse, and your dependents. However, health insurance alone may not cover all of your health care costs. Deductibles, copayments, and noncovered expenses must be paid out of pocket with after-tax dollars.

New Option. One relatively new option for filling in this gap is the combination of high deductible (or so-called “catastrophic”) health insurance with a tax-favored health savings account that can be used to pay for deductibles, copayments, and other out-of-pocket medical expenses, including over-the-counter drugs. Like any other health insurance, high deductible coverage is 100% deductible. In addition, dollars you contribute to a health savings account are tax-free going in—and they are tax-free coming out so long as they are used to pay health care costs. Moreover, contributions can accumulate from year to year if they are not needed for health care expenses.

Spousal Coverage. If your spouse works and has employer-provided health insurance, your health savings account can also fill in gaps in his or her coverage. Amounts you contribute to a health savings account can be withdrawn tax-free to pay for your spouse’s out-of-pocket health care costs—even though he or she is not covered by high-deductible health insurance.

Other Family Options. On the other hand, if your working spouse has employer-provided health insurance that also covers you and your dependents, you are prohibited from setting up a health savings account. Fortunately, there may be other tax-saving options for filling in the gaps in your family’s coverage.

For example, like many businesses, yours may be a family affair. Your spouse may help out part-time in a variety of ways—doing the books, buying supplies, maintaining the premises, or holding down the fort after work at his or her regular job. By making your spouse an official employee of the business, you can provide him or her with supplementary health coverage, including reimbursements for out-of-pocket expenses, that’s fully tax-deductible.

Call Us. If any of these options seem suitable for your business and family situation, we will be happy to discuss them with you. We are also available to discuss any other health-care related tax issues.

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