The rising cost of medical and hospital care and the cost of insurance coverage have led to increased interest in ways to make such costs fully deductible without the benefits being includible in income for the taxpayer. Through 1991 (and the first six months of 1992 if the President signs the bill extending the deduction through June 1992), a 25 percent deduction is allowed for health and accident amounts for self-employed individuals provided — (1) the taxpayer is not eligible to participate in any subsidized health plan maintained by an employer for the taxpayer or the taxpayer's spouse and (2) the amount deducted is limited to the earned income derived from the trade or business for which the deduction is being claimed. The deduction does not reduce the taxpayer's self-employment income for purposes of calculation of self-employment taxes. The remaining 75 percent (through 1991) and the entire amount after 1991 can be included with other medical expenses as an itemized deduction to the extent such expenses exceed 7.5 percent of adjusted gross income.



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