The Self-Employment Health Insurance Deduction

Image shows a girl on her laptop looking frustrated. Beside her is a pile of books, a plant, and a cup of hot coffee. Text reads: "You can't deduct costs of self-employed health insurance if...1) You or your spouse were eligible to participate in a subsidized group health plan through an employer 2) Your self-employment income doesn't equal or exceed the amount of your health insurance deduction"
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The Balance / Jo Zhou

One of the many perks of being self-employed is that you can deduct what you spend on health insurance premiums "above the line" on the first page of your tax return. This means you can still take the standard deduction in addition to the health insurance deduction as opposed to itemizing all deductions and foregoing the standard amount.

Key Takeaways

  • Self-employed workers are able to deduct the amount they spend on health insurance premiums.
  • Employees can also deduct health insurance expenses, but these and other deductions must be greater than the standard deduction in order to benefit them.
  • You can't deduct the costs of health insurance if you or your spouse were eligible to participate in a subsidized group health plan through an employer.

How To Claim the Deduction if You're Self-Employed

If you have self-employment income, you can take the deduction for health insurance expenses incurred for yourself, your spouse, and your dependents. Self-employment income is reported on Schedule F if you're a farmer or Schedule C for other sole proprietors. General partners in partnerships and actively participating members in LLCs that are treated as partnerships can claim the deduction if they have any self-employed income, as can employees of S-corporations who own 2 percent or more of the corporation's stock.

Your self-employment taxes are based on the totality of your business income less other expenses—the income you calculate on Schedule C—but not less your insurance premiums. That would be something of a double tax break. You must calculate your income after business expenses on Schedule C, then enter this income on your Form 1040. The self-employed health expense deduction is then subtracted from this amount further down on your Form 1040. 

What Policies Are Eligible? 

The entire cost of premiums paid for medical insurance, dental insurance, and long-term care insurance are deductible for policies that cover you, your spouse, your dependents, or adult children who have not reached the age 26 as of the last day of the tax year. If you're self-employed and pay supplemental Medicare premiums, such as for Part B coverage, you can deduct these premiums as well. The policy can be in the name of your business if you don't operate under your own name.

Limitations To Claiming the Self-Employment Health Insurance Deduction

You're Eligible for Insurance Through an Employer

You can't deduct the costs of health insurance if you or your spouse were eligible to participate in a subsidized group health plan through an employer. This might be the case if you work a regular job and have your own business on the side, or if your spouse becomes employed and is eligible for family coverage under a group plan. If she takes the job and qualifies for the plan in December, for example, you might have paid for 12 months of health insurance coverage for yourself and your family but you can deduct only 11 months' worth of premiums from January through November because you were eligible for another plan in the last month of the year.

Your Self-Employment Income Is Less than the Health Insurance Deduction

Your self-employment income is calculated on Schedule C or F and it must be equal to or exceed the amount of your health insurance deduction. For example, if your business earned $12,000 but premiums cost you $15,000, you can't claim the entire $15,000. You can only take the $12,000. And if your business reports a loss, you're not eligible for the deduction at all.

Note

You could still claim your health insurance expenses as a medical deduction on Schedule A if you itemize, but the above-the-line adjustment to income for self-employed people is usually more advantageous. It affects your adjusted gross income, a detail upon which several other tax breaks depend. Some credits are reduced or eliminated if your AGI is too high, so the more above-the-line deductions you're entitled to claim, the better.

Some Other Tips for Claiming the Deduction 

  • Enter your self-employment health insurance deduction on line 29 of Form 1040.
  • A worksheet is provided in the Instructions for Form 1040 to calculate the deduction, and a more detailed worksheet can be found in Publication 535.
  • Use Worksheet P found in Publication 974, Premium Tax Credit if you obtained insurance through a health insurance exchange and received a premium assistance tax credit. 

Frequently Asked Questions (FAQs)

Can independent contractors deduct the cost of health insurance?

Yes. If you are self-employed, you are entitled to deduct 100% of the health insurance premiums you pay for yourself and your qualifying dependents. The self-employed health insurance deduction is "above the line", meaning it reduces your adjusted gross income and you can claim the deduction whether or not you itemize.

What qualifies for self-employed health insurance deduction?

You are eligible for the self-employed health insurance deduction if:

  • You don't have access to a health insurance plan through your employer or your spouse's employer
  • You have business income; if your self-employment income is less than the amount you deduct for business expenses, you aren't eligible for the self-employed health insurance deduction
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Internal Revenue Service. "S Corporation Compensation and Medical Insurance Issues."

  2. Internal Revenue Service. "Business Expenses."

  3. Internal Revenue Service. "Small Business Health Care Tax Credit and the SHOP Marketplace."

  4. TurboTax. "Deducting Health Insurance Premiums If You're Self-Employed."

  5. Internal Revenue Service. "Self-Employed Individuals – Calculating Your Own Retirement-Plan Contribution and Deduction."

  6. Internal Revenue Service. "Publication 554." Page 2.

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