Tax season arrived. I handed my CPA $3,000 worth of “Nomad Insurance” receipts. He tossed them out. “This isn’t health insurance,” he said. “This is travel insurance. Unless you are a bona fide resident of a foreign country or meet the Self-Employed Health Insurance Deduction rules, this is just a personal expense.”
Key Takeaways
- Travel Insurance vs. Health Insurance: The IRS generally does not treat “Travel Insurance” (which includes lost luggage/trip delay) as qualifying “Health Insurance” for the self-employed deduction.
- Schedule C Deduction: To deduct premiums on Form 1040 Schedule 1, the policy must be established under your business and provide medical care. Global Health plans (Cigna/GeoBlue) usually qualify. SafetyWing/World Nomads are grey areas often rejected if they bundle non-medical perks.
- Foreign Tax Home: You must have a “Tax Home” abroad to claim certain travel expenses. If you are an “Itinerant” (no home), almost nothing is deductible.
- HSA Compatibility: Most nomad plans are not High Deductible Health Plans (HDHP) compatible with HSAs. You cannot pay premiums with HSA funds tax-free.
The “Why” (The Trap)
The trap is “Personal Expense.”
The IRS views vacation costs as personal. If your insurance covers “Trip Cancellation,” it looks like a vacation product. If it covers “Oncology and Inpatient Care,” it looks like health insurance.
- The Audit Risk: Deducting “World Nomads” as health insurance is a red flag. Deducting “Cigna Global” is standard.
The Investigation: I Called Them
- My CPA (US): “If you buy Cigna Global, I’ll deduct it on Line 17 (Self-Employed Health Insurance). If you buy SafetyWing Nomad Insurance, I might put it under ‘Business Travel Expenses’ if you can prove the travel was 100% business, but it’s risky.”
- SafetyWing: They explicitly state “We are not a warm body compliant health insurance plan for the ACA.”
- IRS Pub 502: “You can include in medical expenses insurance premiums for policies that cover medical care.” It excludes policies that pay for loss of earnings or loss of life/limbs/sight (AD&D). Most travel insurance bundles AD&D, making the whole premium non-deductible as “Medical Expense” unless broken out.
Comparison Table: Tax Deductibility (US)
| Feature | Travel Insurance (Bundled) | Global Health (Medical Only) |
| Self-Employed Health Deduction | Risky / Unlikely | Likely |
| Business Travel Expense | Possible (If 100% biz trip) | N/A |
| HSA Fund Usage | NO | NO (Unless US HDHP) |
| Itemized Medical Deduction | NO (If bundled with AD&D) | YES |
[IMAGE: Photo of IRS Form 1040 Schedule 1 with ‘Self-employed health insurance deduction’ line highlighted]
Step-by-Step Action Plan
- Separate Medical from Travel: Buy a pure Global Medical plan (Cigna/GeoBlue) for health. Buy a separate cheap travel policy for luggage. Deduct the Health plan.
- Consult a Nomad Tax Pro: Don’t use TurboTax default settings. Use a CPA who knows expat tax (like Greenback or Bright!Tax).
- Establish a Business Purpose: If you deduct travel insurance as a business expense, you must prove the entire trip was for business. Being a “digital nomad” living life doesn’t count.
- Save the Policy Document: Not just the receipt. Save the “Schedule of Benefits” to prove it covers medical care.
FAQ
Can I deduct it if I have an LLC?
Yes, if the LLC pays the premium, it can be a business expense or guaranteed payment to partner. Ask your CPA.
Is it deductible if I take the FEIE?
Yes, the Self-Employed Health Insurance deduction applies even if you take the Foreign Earned Income Exclusion.
Does this apply to UK/Canada taxes?
Different rules. In the UK, health insurance is often a “Benefit in Kind” if the company pays, or personal expense if you pay.