For tax year 2010, a self-employed taxpayer will be eligible to claim a self-employed health insurance deduction on Line 29 of Form 1040. Additionally taxpayers also receive a corresponding deduction when calculating self-employment taxes.When calculating self-employment tax, taxpayers can claim a self-employed health insurance deduction, but only for tax years beginning in 2010 [§162(l)(4)]. The deduction for self-employment tax purposes is equal to the income tax deduction and is based on the same criteria (i.e., there is earned income from the trade or business the plan is established, the taxpayer is not eligible to participate in a subsidized plan of an employer , etc.)
In the past, the self-employed taxpayer (including partners) did not benefit from the self-employed health insurance deduction when calculating self-employment taxes. This created a disparity between a sole proprietor (or partner) and a greater than 2% shareholder in an S corporation. The greater than 2% shareholder does not have to pay FICA taxes on the premiums when the employer follows Announcement 92-16. For 2010, there is no disparity.