If you’re self-employed, health insurance feels like a double hit: high premiums and no employer subsidy. The good news is that the self-employed health insurance deduction can reduce your taxable income—often by thousands. This guide explains IRS rules for health insurance premiums in plain English, so you can capture every qualified health insurance deduction available, whether you’re a sole proprietor, partner, or S-corp owner. Any CPA firm can record history. Our firm will help you build a future.
It’s an “above-the-line” adjustment on Schedule 1 that lets you deduct premiums you pay for medical, dental, and qualifying long-term care coverage for yourself, your spouse, and dependents. Unlike itemized medical expenses, you don’t have to cross a percentage threshold of income to benefit. The deduction directly lowers adjusted gross income, which can open doors to other tax credits and deductions. In short, it’s one of the cleanest ways to achieve health insurance tax savings for the self-employed.
Eligibility hinges on having net self-employment income and not being eligible for an employer-sponsored plan (yours or your spouse’s) for the same months. Sole proprietors and single-member LLCs generally qualify if there’s a profit. Partners can qualify when the partnership treats premiums properly. S-corp owners who own more than 2% can also qualify if the company includes the premiums in their wages and other payroll rules are followed. If you have both W-2 wages and a freelance business, you can still claim the deduction against your self-employment earnings—just not for any months you were eligible for subsidized employer coverage.
Medical and dental premiums generally qualify. Medicare premiums can count for the self-employed, too. Long-term care premiums are limited annually by age-based caps. If you buy family coverage, you can include your spouse and dependents in the same deduction. The deduction is capped at your earned self-employment income from the business that provided the coverage. If your year ends in a net loss, you can’t take the deduction—but you may still be able to include eligible amounts as itemized medical expenses. Premium tax credits from the Marketplace must be coordinated so you don’t double-benefit.
If you buy coverage on a state or federal exchange and qualify for advance credits, you must reconcile those credits when you file. Your deduction reflects what you actually paid, not what was subsidized. In some cases, smart year-end planning—like adjusting estimated income—can right-size your credit and your Schedule 1 health insurance deduction together.
No. It reduces income tax, not the self-employment tax that funds Social Security and Medicare. That said, lowering AGI can still deliver indirect benefits, from phase-in credits to retirement contribution opportunities.
Meet “Ava,” a Florida-based independent physical therapist earning $165,000 in Schedule C profit. She pays $14,400 a year for family health coverage and $1,200 for dental. Her spouse is not eligible for employer coverage. Because Ava has self-employment income and no access to subsidized employer coverage, she can deduct $15,600 on Schedule 1. That reduces her AGI by the same amount, potentially improving her eligibility for other benefits. If Ava later incorporates as an S-corp, she can still capture a similar deduction as a more-than-2% shareholder—provided the corporation reports the premiums correctly in her W-2 and she has reasonable wages to support the deduction.
Keep your policy documents, invoices, and proof of payment. If you’re a partner or S-corp owner, retain payroll reports and accounting entries showing how premiums were handled. For Marketplace coverage, keep your 1095-A and the reconciliation on your tax return. Good documentation is your safety net if questions arise.
An accountant will record what happened and file the return. An advisor uses your financial data to anticipate issues, model coverage choices, and coordinate estimated income with Marketplace credits so you get the optimal outcome, not just an accurate one. That’s the difference between being seen as an expense versus an investment—and it’s how we operate every day.
Review eligibility month by month. Confirm that neither you nor your spouse was eligible for subsidized employer coverage. If you’re on the Marketplace, project your final income and adjust estimates to avoid a big clawback or missed credits. If you’re considering an S-corp, map out reasonable wages and make sure premiums flow through payroll correctly. If you’re weighing family coverage or Medicare, test scenarios to see how the deduction, credits, and retirement contributions play together.
The self-employed health coverage options you choose can either strain cash flow or become a planning lever. Coordinated with retirement plan contributions, entity choice, and quarterly tax planning, your qualified health insurance deduction can help reduce taxable income strategically while keeping coverage in place. That’s future-focused planning—aligning benefits with profitability and growth, not just surviving open enrollment.
Health insurance is complicated, but your deduction shouldn’t be. If you want to minimize tax, preserve cash, and keep coverage steady, it pays to plan now—before you file. Want this tailored to your business? Book a call now.
No. If you or your spouse are eligible for subsidized employer coverage for a month, that month’s premiums generally aren’t deductible under the self-employed health insurance rules.
Yes, Medicare premiums can qualify if you otherwise meet the self-employed eligibility requirements and have sufficient self-employment income for the year.
For more-than-2% shareholders, the S-corp typically pays or reimburses premiums, includes them in your Form W-2 wages, and you take the deduction on your individual return—subject to wage and income limits.
You can’t take the above-the-line self-employed health insurance deduction if you have no net self-employment income, but you may still claim eligible amounts as itemized medical expenses, subject to the usual thresholds.
Yes, but it’s subject to annual age-based limits that change periodically. Keep your policy and payment records and check the current year’s caps.