If you work for yourself, you pay for health insurance from your own pocket instead of through a company plan. The tax code gives many self-employed people a break on those premiums, but the rules have conditions. This guide explains the basics in plain English. It is general information, not tax advice, so confirm details with a tax professional.
What the deduction is
The self-employed health insurance deduction lets eligible people deduct premiums they pay for medical insurance for themselves, a spouse, and dependents. It is generally claimed as an adjustment to income on your personal return, not as a business expense on Schedule C. Because it is an adjustment, it can lower your adjusted gross income, which can affect other tax calculations.
Who generally qualifies
- Sole proprietors, partners, and certain S-corporation owners who meet the rules.
- People with a trade or business that earns a net profit.
- Those whose plan is established under the business or, in some cases, personally and linked to the business according to IRS rules.
Rules for S-corporation shareholders are more specific, including how premiums are reported on the owner's wages, so those owners should work with a professional.
What premiums may be included
Depending on circumstances, deductible premiums can include:
- Medical, dental, and qualified vision insurance.
- Medicare premiums, including Part B, Part D, and Medigap or Advantage premiums.
- Certain qualified long-term care premiums, subject to age-based limits.
Coverage for yourself, your spouse, and your dependents, including children under 27 at the end of the year, can qualify.
The key limits
- Net profit limit. The deduction generally cannot exceed your net earnings from the business. If your business has a loss, you may not be able to deduct.
- Other coverage. You generally cannot deduct premiums for any month when you were eligible to participate in a subsidized plan through your own or your spouse's employer.
- The business must be real. The deduction connects to a trade or business that earns income.
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Get my free quoteHow it helps in practice
Suppose a self-employed person pays a monthly premium and has enough net profit. The deduction reduces taxable income by the qualifying premiums, which can reduce both income tax and, in some cases, other tax calculations. Because it is an adjustment to income, you do not need to itemize to benefit. The savings depend on your tax bracket, so a precise number requires your actual return.
Records to keep
- Premium statements or invoices for each month.
- Proof of who was covered.
- Records showing months you were or were not eligible for employer coverage.
- Form 1095-A if you had Marketplace coverage.
- Your business income and expense records.
Ways to organize your coverage
- Individual Marketplace plan. Many self-employed people use ACA plans, sometimes with subsidies. See self-employed health insurance options.
- Spouse's employer plan. If eligible, it may limit your deduction.
- ICHRA from your own corporation. If you have W-2 employees, an ICHRA may be possible. Details are technical.
- Medicare. If you are 65 or older, Medicare premiums may be deductible too. See Medicare Parts explained.
Common mistakes
- Claiming the deduction in a month you could have joined a spouse's employer plan.
- Ignoring the net-profit limit.
- Forgetting that the deduction and the premium tax credit interact.
- Not keeping premium records.
- Treating it as a Schedule C expense when it is an adjustment on the personal return.
Planning tip
Because the deduction depends on your annual profit, a big drop in income can change both the deduction and your subsidy. If your income is variable, check your estimates mid-year. Our guide on subsidies and changing income walks through the process.
A short illustration with made-up numbers
Imagine a freelancer who pays premiums all year and finishes with a net profit well above the premium total. The deduction could reduce adjusted gross income by the full premium amount, assuming no month of eligibility for other subsidized coverage. If the same freelancer had only a small profit, the deduction would be capped at that profit. These numbers are hypothetical, and the exact result depends on your return, but the pattern shows why profit level and timing matter so much.
Talk to a pro before filing
Because of the interaction with subsidies and the special rules for S-corporation owners, ask your tax preparer to calculate the deduction and the premium tax credit together. A small amount of professional time here can prevent an amended return later.
How we help
Honorbrook is an independent agency. We compare health plans for self-employed people and explain how premiums and subsidies work. We do not provide tax advice, so your CPA should confirm your deduction. Our help is free because carriers pay us.
Availability and rules vary by state
Health plans, premiums, enrollment rules and state programs differ by state and sometimes by county, and a given plan may not be available in every state. Honorbrook is licensed in the 11 states below; what we can offer you depends on what carriers sell where you live. Each state’s insurance regulator can verify an agent’s license and answer consumer questions.
- Virginia: Virginia Bureau of Insurance
- Maryland: Maryland Insurance Administration
- North Carolina: North Carolina Department of Insurance
- South Carolina: South Carolina Department of Insurance
- Georgia: Georgia Office of Insurance and Safety Fire Commissioner
- Alabama: Alabama Department of Insurance
- Louisiana: Louisiana Department of Insurance
- Texas: Texas Department of Insurance
- Michigan: Michigan Department of Insurance and Financial Services
- Indiana: Indiana Department of Insurance
- West Virginia: West Virginia Offices of the Insurance Commissioner