The Self-Employed Health Insurance Deduction
When you buy your own health coverage as a self-employed person, the premiums aren't just a business cost — they're one of the most valuable deductions you get. The self-employed health insurance deduction is above the line: it lowers your adjusted gross income directly, whether or not you itemize, so it also shrinks the income your other tax breaks are measured against. This guide covers exactly what qualifies, the two rules that trip people up (the employer-plan test and the net-profit limit), and a worked example.
What the deduction is
If you have self-employment income and pay for your own health insurance, you can deduct those premiums on Schedule 1 (Form 1040), line 17, and it's figured on Form 7206. Because it's an adjustment to income rather than an itemized deduction, you get the full benefit even if you take the standard deduction — unlike ordinary medical costs, which only help if you itemize and clear the 7.5%-of-AGI floor.
It's available to sole proprietors and other Schedule C filers, farmers (Schedule F), general partners with self-employment earnings, and more-than-2% shareholders of an S corporation (whose premiums are handled through W-2 wages). The plan can be in your name or the business's name.
What premiums qualify
The deduction covers premiums for coverage of you, your spouse, your dependents, and any child who was under 27 at the end of the year (even if that child isn't your dependent):
- Medical, dental, and vision insurance;
- Qualified long-term-care insurance — deductible only up to age-based annual limits the IRS indexes each year (look up the current-year cap for your age before relying on it);
- Medicare premiums you voluntarily pay in your own name — Part B, Part D, and Medicare Advantage or Medigap — which is a common win for self-employed retirees who still have business income.
The employer-plan month rule
Here's the rule that surprises people. You cannot deduct premiums for any month you were eligible to participate in a subsidized health plan maintained by an employer — yours, your spouse's, or the employer of a dependent or of your under-27 child. The test is applied month by month, and eligibility is what matters, not enrollment: if you could have joined your spouse's employer plan in a given month, that month is out even if you turned the coverage down. Many one-spouse-with-a-W-2-job households lose the deduction for exactly this reason.
The net-profit limit
The deduction can't exceed the earned income from the business that establishes the plan. In practice that means it's capped at your net profit from that business, reduced by the deductible half of your self-employment tax and any self-employed retirement contributions attributable to it:
limit = net profit − deductible ½ of SE tax − SE retirement contributions
If your premiums come in under that limit, you deduct them in full above the line. If they exceed it, the excess isn't lost — it drops down to your itemized medical deduction on Schedule A, where it competes with the 7.5%-of-AGI floor.
Worked example
Suppose you're a sole proprietor with $60,000 of Schedule C net profit, no retirement-plan contribution this year, and you paid $7,200 ($600/month) for a marketplace medical plan. First find the earned-income limit, which starts from the deductible half of your self-employment tax:
| Step | Amount |
|---|---|
| Net profit (Schedule C) | $60,000.00 |
| Net earnings subject to SE tax (× 0.9235) | $55,410.00 |
| Self-employment tax (× 15.3%) | $8,477.73 |
| Less deductible half of SE tax | −$4,238.87 |
| Earned-income limit | $55,761.13 |
| Step | Amount |
|---|---|
| Premiums paid ($600 × 12) | $7,200.00 |
| Earned-income limit | $55,761.13 |
| Deductible on Schedule 1, line 17 (lesser) | $7,200.00 |
Because $7,200 is well below the $55,761.13 limit, the whole $7,200 comes off your income above
the line. If instead your net profit had been just $5,000, the limit would be about
$5,000 − $353.24 = $4,646.76 (the deductible half of SE tax on $5,000 is $353.24), so
only $4,646.76 of the $7,200 would be deductible here and the remaining $2,553.24 would
move to Schedule A. (The $60,000, $5,000, and $7,200 are illustrative inputs; the 0.9235 factor and
the 15.3% rate are the statutory self-employment-tax figures.)
How to claim it
- Total your qualifying premiums for the months you were not eligible for an employer-subsidized plan.
- Figure the earned-income limit on Form 7206 (net profit minus the deductible half of SE tax and any SE retirement contributions).
- Deduct the smaller of premiums or the limit on Schedule 1 (Form 1040), line 17.
- Carry any excess premiums to Schedule A as an itemized medical expense (subject to the 7.5% floor) if it helps.
Watch it flow through. This deduction lowers your AGI, which changes your income tax — but note it does not reduce the self-employment tax on your Schedule C profit. See how SE tax and income tax stack up on your numbers.
Open the Self-Employment Tax Calculator →- IRS, Instructions for Form 7206 (Self-Employed Health Insurance Deduction) — coverage, the net-profit limit, the employer-plan month rule, Medicare and long-term-care premiums
- IRS, About Form 7206
- IRS, Instructions for Schedule C / Schedule 1 (Form 1040) — where the deduction is reported (line 17)
- IRS, Schedule SE (Self-Employment Tax) — the 0.9235 factor and 15.3% rate used in the limit
Frequently asked questions
What is the self-employed health insurance deduction?
It is an above-the-line deduction that lets self-employed people deduct the premiums they pay for medical, dental, vision, and qualified long-term-care insurance for themselves, a spouse, dependents, and children under 27. You claim it on Schedule 1 (Form 1040), line 17, which lowers your adjusted gross income whether or not you itemize. It is figured on Form 7206.
Can I deduct Medicare premiums as self-employed health insurance?
Yes. Medicare premiums you voluntarily pay for coverage in your name — Part B, Part D, and Medicare Advantage or Medigap — can count toward the self-employed health insurance deduction if you have self-employment income and are not eligible for an employer-subsidized plan. This lets many self-employed retirees who still have business income deduct their Medicare premiums above the line.
What is the income limit on the deduction?
The deduction cannot exceed the earned income from the business that establishes the plan — essentially your net profit from that business, reduced by the deductible half of your self-employment tax and any self-employed retirement contributions from it. If your premiums exceed that limit, the excess is not lost — it moves to your itemized medical deduction on Schedule A, subject to the 7.5%-of-AGI floor.
Can I take the deduction if my spouse has employer coverage?
Not for the months you were eligible to join a subsidized employer plan — including your spouse's employer plan. The test is month by month: if you could have participated in an employer-subsidized health plan (yours, your spouse's, or that of a dependent or a child under 27) during a month, you cannot deduct premiums for that month, even if you declined the coverage.
This article is educational information, not tax, legal, or financial advice, and not an offer of any product. The deduction has additional rules and exceptions (S-corporation shareholders reporting through W-2 wages, coordination with the Premium Tax Credit for marketplace coverage, the age-based long-term-care caps, and partnership guaranteed payments); confirm how they apply on the IRS Instructions for Form 7206. The 0.9235 factor and 15.3% rate are the statutory self-employment-tax figures as of July 2026; the other dollar amounts here are illustrative. Confirm current numbers with a licensed tax professional. Last reviewed July 2026. No liability is accepted for decisions made from this content.