One of the key tax advantages for self-employed individuals is the ability to deduct health insurance premiums directly from their income. This deduction can significantly reduce your taxable income and overall IRS liability.
IRS Tax Code Reference
Under Internal Revenue Code (IRC) §162(l), self-employed taxpayers may deduct 100% of their health insurance premiums for themselves, their spouses, dependents, and children under age 27, even if the child is not a dependent on their tax return.
Relevant IRS Forms:
- Form 1040 — U.S. Individual Income Tax Return
- Schedule 1 (Form 1040) — Additional Income and Adjustments to Income
Who Qualifies for the Self-Employed Health Insurance Deduction?
You can claim the deduction if:
- You had net earnings from self-employment reported on Schedule C, Schedule F, or as a partner on Schedule K-1 (Form 1065).
- You (or your spouse if filing jointly) were not eligible to participate in an employer-subsidized health plan.
- The insurance plan was established under your business, even if the policy is in your personal name.
What Health Insurance Costs Are Deductible?
You can deduct premiums paid for:
- Medical insurance
- Dental insurance
- Vision insurance
- Qualified long-term care insurance (limits apply based on age)
- COBRA continuation coverage
- Health plans purchased through the Health Insurance Marketplace
Example:
Scenario:
- Net self-employment income: $80,000
- Health insurance premiums paid during the year: $8,000
Deduction:
You can deduct the full $8,000 on Schedule 1 (Form 1040), directly reducing your adjusted gross income (AGI).
Step-by-Step Compliance Checklist
- Confirm you have net earnings from self-employment.
- Make sure you were not eligible for an employer’s health plan.
- Pay health insurance premiums directly (can be personal or business account).
- Keep detailed records: policy documents, payment receipts, and canceled checks.
- Claim the deduction on Schedule 1 (Form 1040), Line 17.
Note:
You cannot claim this deduction for any month you were eligible for an employer-sponsored plan, even if you did not enroll.
Important Points to Remember
- The self-employed health insurance deduction is an above-the-line deduction (reduces AGI).
- If your self-employment income is less than your premiums, the deduction is limited to your business income.
- You cannot double-claim premiums — if deducted here, you cannot also claim them as a medical expense on Schedule A.
Conclusion
Deducting health insurance premiums is a powerful tax-saving opportunity for self-employed individuals.
However, strict eligibility rules apply, and the deduction must be carefully calculated.
A CPA can ensure you maximize this benefit while remaining fully compliant with IRS rules.
Schedule a meeting with Anshul Goyal, CPA to optimize your tax savings:
https://calendly.com/anshulcpa/
FAQs
Q1: Can I deduct health insurance premiums if I have a side business?
Yes, but only if the side business produces net income and you are not eligible for an employer plan.
Q2: Does COBRA coverage qualify for the deduction?
Yes, premiums paid for COBRA continuation coverage are deductible.
Q3: Can I deduct premiums paid for my spouse and kids?
Yes, as long as the plan covers them and you meet self-employment qualifications.
Q4: What if I qualify for a premium tax credit?
You must reduce the deductible amount by any advance premium tax credit received.
Q5: Where do I report the deduction?
On Schedule 1 (Form 1040), under Adjustments to Income.
About Our CPA
Anshul Goyal, CPA, EA, FCA, is a licensed Certified Public Accountant in the United States. He is admitted to practice before the IRS as an Enrolled Agent and represents clients in tax compliance and litigation. Anshul specializes in helping self-employed individuals and small business owners structure their tax affairs efficiently.