IRS Has Good News for Self-Employed

WASHINGTON - Here's good news for 3.2 million self-employed people -- they can deduct 25 percent of their health insurance premiums on their 1994 tax returns.

The Internal Revenue Service announced today that the 25 percent self-employed health insurance deduction, which expired in December 1993, has been restored retroactive to January 1, 1994. Beginning with next year's (1995's) tax return, the deduction will increase to 30 percent of allowable premiums.

To claim the 25-percent deduction for 1994, individuals have to be self-employed, with a net profit for the year. For this purpose, two-percent shareholders of an S corporation who receive wages from the corporation are treated as self-employed. This deduction may not be claimed, however, for any month in which individuals could have participated in health plans subsidized by their or their spouses' employers.

Self-employed individuals who have already filed 1994 returns, but did not claim the 25-percent health insurance deduction, may do so by filing Form 1040X, Amended U.S. Individual Income Tax Return.

Some individuals who filed and claimed the deduction before the law was signed may have received a notice from the IRS denying the deduction. Individuals who have not yet responded to the notice should write "SE health insurance" on the notice and return it to the IRS to receive the benefits of the deduction. Individuals who have already responded to the notice disallowing the deduction, and who agreed to a reduced refund or to pay the additional tax assessment, should submit a Form 1040X to reclaim the deduction and get a refund. Individuals should allow at least eight weeks for processing their response to the notice or their Form 1040X.

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