How Much Self-Employed Health Insurance Can I Deduct?

If you work for yourself, you can deduct 100% of the health insurance premiums you pay for yourself, your spouse, your dependents, and any child under age 27 at year end, taken as an above-the-line adjustment on Schedule 1. The self-employed health insurance deduction is capped at your net earned income from the business that established the plan, and you lose it for any month you were eligible to join a subsidized health plan through an employer, your spouse’s employer, or a dependent’s employer. Because it reduces adjusted gross income directly, you get the benefit whether or not you itemize.¹

Who Can Claim It

Sole proprietors reporting on Schedule C and farmers on Schedule F qualify on the strength of their net self-employment income. Partners qualify when the partnership pays or reimburses their premiums and treats those amounts as guaranteed payments; the partner reports the guaranteed payment in gross income and then deducts the premiums on their personal return. If the partnership books the insurance as a reduction in distributions instead, no deduction is available at either level.²

S corporation shareholders who own more than 2% of the stock have their own reporting path. The corporation must pay the premiums or reimburse the shareholder, and the full premium amount must appear on the shareholder’s Form W-2 in Box 1 as wages. Those wages are subject to income tax withholding but not to Social Security or Medicare tax, so Boxes 3 and 5 stay clean. The shareholder then claims the deduction on their individual return.³ Skipping the W-2 step is one of the more common S-corp mistakes, and it can cost you the deduction.

What Premiums Count

Medical, dental, and vision insurance premiums all qualify, as do premiums for qualified long-term care policies. The plan must be established under your trade or business, or under the S corporation for a more-than-2% shareholder. Coverage for your spouse, your dependents, and any child who is under 27 at year end all count, and the child does not have to be your tax dependent, unmarried, or a student.¹

Medicare premiums qualify too. The IRS has confirmed that premiums for all parts of Medicare, including Part A, Part B, Part D, and Medicare Advantage, count as insurance constituting medical care under Section 162(l).⁴ If you keep working past 65 and pay Part B and supplemental premiums yourself, run them through this deduction.

Long-Term Care Premium Caps

Long-term care policies qualify, but only up to an age-based dollar cap per person insured, and the caps adjust each year for inflation. For 2026 the per-person limits are:⁵

Age 40 or younger: $500
Age 41 to 50: $930
Age 51 to 60: $1,860
Age 61 to 70: $4,960
Over age 70: $6,200

Pay $8,000 in long-term care premiums at age 55 and only $1,860 goes into this deduction. Anything above the cap is not lost forever, but it can only surface as an itemized medical expense on Schedule A, where it competes with the 7.5% AGI floor.⁶

The Earned-Income Ceiling

Your deduction cannot exceed the net earned income from the specific business that established the plan. If your Schedule C nets $8,000 and you paid $12,000 in premiums, the deduction stops at $8,000. The extra $4,000 doesn’t generate a loss and cannot be carried forward under this provision. A business that shows a net loss produces a deduction of zero for that plan.¹

Running more than one business means running the cap more than once. You file a separate Form 7206 for each plan and match that plan’s premiums against the profit of the business that established it. Pooling profits from an unrelated business to lift the cap on a different plan is not allowed.⁷ Premiums the cap knocks out can still land on Schedule A, subject to the 7.5% AGI floor.

Months You Were Eligible for an Employer Plan

You cannot claim the deduction for any month in which you were eligible to take part in a subsidized health plan maintained by an employer. That includes your own employer if you also have a W-2 job, your spouse’s employer, and the employer of a dependent or a child under 27. Eligibility alone disqualifies the month; whether you actually enrolled makes no difference.⁷

The test runs month by month, so a mid-year change splits the year. Leave a W-2 job in May and lose employer coverage, and June through December are deductible while January through May are not. A freelancer whose spouse starts a job with family benefits in September loses the deduction from September on. Keep records of the exact dates employer coverage started or ended in case the return is examined.

Marketplace Coverage and the Premium Tax Credit

Buying coverage through the Health Insurance Marketplace with a premium tax credit sets up a circular calculation. The deduction lowers your AGI, which raises your credit, which reduces the premiums you actually paid, which lowers your deduction. The IRS addressed the loop in Revenue Procedure 2014-41 and gives you two ways to solve it: an iterative method that recalculates deduction and credit until they change by less than a dollar between rounds, and an alternative method that gets there in four steps.⁸ Publication 974 has the worksheets, including Worksheet W, which starts with your gross premium, subtracts the advance premium tax credit you received, and computes the deduction from the net.⁹ The upshot: deduct the premium you actually paid after subsidies, not the sticker price.

Where the Deduction Goes on Your Return

The deduction lands on Schedule 1 (Form 1040), line 17. That placement makes it an adjustment to income, so it lowers your AGI whether you take the standard deduction or itemize, and the lower AGI can help you qualify for other credits and deductions that phase out at higher income levels.¹⁰

Calculate the amount on Form 7206, which replaced the old worksheet in Publication 535. Form 7206 is required if you had more than one source of self-employment income, if you file Form 2555 for foreign earned income, or if you’re including qualified long-term care premiums. Otherwise the simpler worksheet in the Form 1040 instructions is enough.¹¹

It Does Not Reduce Self-Employment Tax

This deduction cuts your income tax. It does not cut your self-employment tax. You cannot subtract it when figuring net earnings from self-employment on Schedule SE, so your 15.3% Social Security and Medicare tax bill is unchanged by any premium you deduct here.¹¹ The deductible half of self-employment tax, claimed separately on Schedule 1, does reduce the earned-income figure that caps this deduction, but the traffic runs one way. When you build your quarterly estimated payments, keep the SE tax calculation and the income tax calculation on separate tracks so the health insurance figure doesn’t wander into the wrong one.

1
Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses
2
Internal Revenue Service. Publication 541 Partnerships
3
Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues
4
Internal Revenue Service. IRS Chief Counsel Memorandum 201228037
5
Office of the Law Revision Counsel. 26 USC 213 – Medical, Dental, Etc., Expenses
6
Internal Revenue Service. Publication 502 (2025), Medical and Dental Expenses
7
Internal Revenue Service. 2025 Instructions for Form 7206 – Self-Employed Health Insurance Deduction
8
Internal Revenue Service. Revenue Procedure 2014-41 – Computation of Self-Employed Health Insurance Deduction and Premium Tax Credit
9
Internal Revenue Service. Publication 974 (2025), Premium Tax Credit (PTC)
10
Internal Revenue Service. Form 7206 Self-Employed Health Insurance Deduction Worksheet
11
Internal Revenue Service. Instructions for Form 7206 (2025)