If you're self-employed, congratulations - you get to pay for your own health insurance AND your taxes are a nightmare. But here's the good news: You can deduct 100% of your health insurance premiums from your taxable income.

This isn't some sketchy loophole. It's an above-the-line deduction written right into the tax code specifically for self-employed people. And most freelancers, contractors, and small business owners aren't taking full advantage of it.

How Much Can You Save? If you're paying $600/month for health insurance ($7,200/year) and you're in the 24% tax bracket, this deduction saves you about $1,728 in federal taxes alone. Plus you save on self-employment tax. Real money.

Do You Qualify? (Probably Yes)

You can claim the self-employed health insurance deduction if:

  1. You have net self-employment income from a business or freelance work
  2. You're not eligible for an employer plan - either your own "day job" or your spouse's employer
  3. The insurance is in your name or your business's name
  4. Your business is profitable - you can't deduct more than your net self-employment income
Who Counts as Self-Employed?
  • Sole proprietors (Schedule C filers)
  • Single-member LLC owners
  • Partners in a partnership
  • S-Corp shareholders owning more than 2% of the company
  • Independent contractors (1099 income)
  • Gig workers (Uber, DoorDash, etc.)

What You Can (and Can't) Deduct

You CAN Deduct:

  • Health insurance premiums for medical, dental, and vision coverage
  • Premiums for your spouse and dependents (if covered under your plan)
  • Qualified long-term care insurance (with age-based limits)
  • Medicare premiums (Parts A, B, C, and D) if you're over 65 and still working

You CAN'T Deduct:

  • Months you were eligible for employer coverage (even if you didn't take it)
  • Premiums paid with pre-tax dollars (like through an employer cafeteria plan)
  • More than your net self-employment income for the year

How to Actually Claim the Deduction

Step 1: Calculate Your Deductible Amount

Add up all premiums paid for the year for:

  • Medical insurance
  • Dental insurance
  • Vision insurance
  • Long-term care insurance (if applicable)

Step 2: Check Your Income Limit

Your deduction can't exceed your net self-employment income. If you made $50,000 in self-employment income and paid $10,000 in premiums, you can deduct the full $10,000. But if you only made $8,000, you can only deduct $8,000.

Step 3: Report It on Your Tax Return

This goes on Schedule 1, Line 17 of your Form 1040. It's an "above-the-line" deduction, which means:

  • You get it even if you take the standard deduction
  • It reduces your Adjusted Gross Income (AGI)
  • It also reduces your self-employment tax calculation
Common Mistake: Do NOT put this on Schedule C as a business expense. It goes on Schedule 1. If you put it on Schedule C, you're messing up your self-employment tax calculation and the IRS will eventually notice.

Special Cases and Gotchas

If Your Spouse Has Employer Coverage

If your spouse is eligible for employer-sponsored insurance, you can ONLY deduct premiums for months when you (or your spouse) were NOT eligible for that coverage. This is where it gets tricky.

Example: Your spouse gets a job with health insurance on July 1st. You can deduct your premiums for January through June, but not July through December.

If You Have an S-Corp

If you own more than 2% of an S-Corp, your health insurance premiums should be included on your W-2 as wages (Box 1) but NOT subject to withholding (not in Box 2). Then you deduct them on Schedule 1. Your S-Corp gets to deduct the premiums as a business expense.

This is complicated. Get help from an accountant.

If You Also Have a W-2 Job

If you have both self-employment income AND a W-2 job with available health insurance, you can't take this deduction at all. The IRS considers you "eligible" for employer coverage even if you don't actually enroll.

If You're On Your Spouse's Plan

As long as the premium is coming out of YOUR self-employment income (not your spouse's paycheck), you can still deduct your share. But you need to be able to prove what portion of the premium covers you.

Real-World Example: The Math

Meet Sarah, a freelance graphic designer:

  • Self-employment income: $75,000
  • Health insurance premiums: $8,400/year ($700/month)
  • Tax bracket: 22% federal

Sarah's tax savings:

  • Federal income tax savings: $8,400 x 22% = $1,848
  • Self-employment tax savings: $8,400 x 15.3% = $1,285
  • Total savings: $3,133

That's $3,133 Sarah would have paid to the IRS but now gets to keep. Just for claiming a deduction she already qualified for.

Pro Tip: This deduction is even more valuable if you're in a higher tax bracket or live in a state with income tax. The higher your tax rate, the more you save.

What About the Premium Tax Credit?

If you buy insurance through the ACA Marketplace and qualify for premium subsidies, here's how it works:

  1. You can't double-dip. You can only deduct the premiums you actually paid out of pocket (after subsidies).
  2. The subsidy is based on your Modified Adjusted Gross Income (MAGI)
  3. This deduction DOES lower your MAGI, which could qualify you for bigger subsidies next year

Strategy: If you're right on the edge of subsidy eligibility, this deduction might push you into a higher subsidy bracket for next year.

Don't Forget Long-Term Care Insurance

If you have qualified long-term care insurance, you can deduct those premiums too, subject to age-based limits:

  • Age 40 or under: $480 max
  • Age 41-50: $890 max
  • Age 51-60: $1,790 max
  • Age 61-70: $4,770 max
  • Age 71+: $5,960 max

Record-Keeping: What You Need to Save

Keep these documents in case of an audit:

  • Insurance policy declarations page
  • Payment receipts or bank statements showing premium payments
  • Form 1095-A if you bought through the Marketplace
  • Schedule C or equivalent showing your self-employment income

Common Questions

Q: Can I deduct health insurance if I also have retirement income?

Only if you also have self-employment income. The deduction is limited to your net self-employment earnings.

Q: What if I'm semi-retired and only do freelance work part-time?

Still counts, as long as you have self-employment income and aren't eligible for other coverage.

Q: Can I deduct COBRA premiums?

Yes, if you're self-employed and not eligible for another employer plan.

Q: What about HSA contributions?

That's a separate deduction. You can claim both the health insurance premium deduction AND HSA contribution deduction.

Bottom Line: Don't Leave Money on the Table

If you're self-employed and paying for health insurance, you're entitled to this deduction. It's not optional, it's not risky, and it can save you thousands in taxes.

Action steps:

  1. Add up all your health insurance premiums for the year
  2. Make sure you weren't eligible for employer coverage
  3. Report it on Schedule 1, Line 17 of your tax return
  4. If you're not sure how, hire a CPA who works with self-employed clients
Need help finding affordable health insurance as a self-employed person? Call David at (863) 640-3102. We specialize in working with freelancers, contractors, and small business owners to find plans that maximize your tax benefits while minimizing your premiums.

Questions About Self-Employed Coverage?

Call David: (863) 640-3102
Email: dhuff@healthmarkets.com

We'll help you find a plan that works for your business and your budget. And we'll explain exactly how to take the deduction come tax time.

Disclaimer: This is general tax information. Tax laws change, and everyone's situation is different. Always consult with a qualified tax professional for advice specific to your situation.