Intuit Academy Tax Level 1 Practice Test

The self-employed health insurance deduction allows self-employed individuals to deduct the cost of health insurance premiums paid for themselves, their spouses, and dependents from their taxable income. When calculating this deduction, one-half of the self-employment tax is considered, which reflects the objective to approximate the employer’s portion of payroll taxes that W-2 employees do not pay.

The deduction is specifically designed to align self-employed individuals more closely with employees regarding health insurance costs. By allowing the deduction of one-half of the self-employment tax, it ensures that self-employed taxpayers can benefit similarly to employees who have their health insurance contributions deducted from their wages before taxes are calculated.

This understanding of the deduction is fundamental for self-employed individuals in managing their tax liabilities and ensuring they receive appropriate tax relief for their health insurance costs.