Can I deduct my health insurance if I'm self-employed?

A self-employed person who is not eligible for coverage through an employer or a spouse's employer can generally deduct the premiums they pay for medical, dental, and qualifying long-term-care insurance for themselves and their family. The deduction is taken against income rather than as an itemised deduction, and it is limited to the business's net profit.

Key points

A self-employed person can deduct premiums paid for medical, dental, and qualifying long-term-care insurance covering themselves, a spouse, and dependents.
The self-employed health insurance deduction is computed on Form 7206 and taken above the line on Schedule 1, so it lowers income whether or not the taxpayer itemises.
The deduction is unavailable for any month the owner was eligible for a subsidised employer plan through their own job or a spouse's job.
The deduction cannot exceed the net profit of the business the coverage relates to; excess premiums may count as itemised medical expenses instead.
A more-than-two-percent S-corporation shareholder must have premiums added to W-2 wages and then deducts them on the personal return.

Who qualifies for the self-employed health insurance deduction?

The deduction under section 162(l) is available to a sole proprietor with Schedule C profit, a general partner with self-employment earnings, and a more-than-two-percent S-corporation shareholder who receives wages from the corporation. It covers premiums for medical, dental, and qualifying long-term-care insurance for the owner, a spouse, dependents, and children under twenty-seven, and it includes Medicare premiums the owner pays.

The plan must be established under the business. For a sole proprietor that means the policy is in the owner's name or the business's name and paid from either; for an S-corporation, the corporation must pay or reimburse the premium.

How is the deduction calculated and where is it claimed?

The amount is computed on Form 7206 and carried to Schedule 1 of Form 1040. It is an above-the-line deduction, so it lowers adjusted gross income whether or not the owner itemises, and it reduces income tax but not self-employment tax.

Long-term-care premiums count only up to an age-based annual cap. Any premium that cannot be deducted here because of the limits below may still be included with itemised medical expenses on Schedule A, where it is deductible only above a floor tied to adjusted gross income.

How does the deduction work for S-corporation owners?

A more-than-two-percent shareholder does not deduct premiums on the corporate return as an ordinary fringe benefit. The corporation pays the premium, adds it to the shareholder's W-2 wages in box one without withholding Social Security or Medicare tax, deducts it as compensation, and the shareholder then takes the deduction on the personal return. Getting that mechanic wrong, by leaving premiums off the W-2 or deducting them twice, is a routine error that a payroll provider needs to be told about before year-end forms are issued.

Employing a spouse who does real work can open a broader medical reimbursement arrangement under section 105 designed for a single employee, which is a related but separate strategy with its own documentation requirements.

What are the limits of the deduction?

Two limits define it. You cannot take it for any month you were eligible to participate in a subsidised health plan through your own employer or your spouse's employer, whether or not you enrolled. And the deduction cannot exceed the net profit of the business the coverage relates to, after subtracting half of self-employment tax and any retirement plan contribution.

Premiums beyond that profit, or for months you were eligible elsewhere, are not lost but fall to Schedule A, where most taxpayers get no benefit. If coverage is bought through a marketplace with a premium tax credit, the deduction and the credit are coordinated so the same premium is not counted twice. The through-line is that owner health coverage is a planning item: the structure decides whether the premium is fully deductible, partly deductible, or effectively lost.