If you’re self-employed, you can deduct the premiums that you pay for health insurance, saving money at tax time and helping to offset the cost of health coverage. The self-employed health insurance deduction is an above-the-line deduction, so you don’t have to itemize deductions to take it. It’s not available in all situations, however. Key factors for eligibility include having qualifying health insurance, being considered self-employed and not having access to an employer group health plan. You can, however, deduct premiums for several kinds of health insurance, including medical, dental, Medicare and long-term care. Consult a financial advisor to identify all deductions you may be eligible to take as a self-employed individual.
Self-Employed Health Insurance Premium Deductions
The self-employed health insurance deduction allows self-employed taxpayers to deduct premiums paid for health insurance for themselves and family members. It is an above-the-line deduction, so it can be taken whether or not you itemize deductions. This deduction reduces your taxable income, which may make you eligible for other tax benefits that have income thresholds.
While many self-employed people will be able to take this deduction, there are some restrictions. For one thing, the insurance coverage has to meet some criteria. Additional limitations keep it from being used if the self-employed person could get insurance through an employer.
Qualifying Insurance Criteria
Most types of health insurance qualify for the self-employed health insurance deduction. Eligible premiums include those for medical and dental coverage and all kinds of Medicare, including Parts B, C and D. Premiums for long-term care plans also may be deducted as long as the policy is deemed tax-qualified by the IRS.
This deduction is not just for premiums you pay to cover your own health. You can also deduct premiums covering yourself, your spouse, dependents and non-dependent children under age 27.
Self-Employment Eligibility
There are also some rules to follow concerning your own eligibility for this deduction. To qualify for deducting health insurance premiums, you must have reported net profit income as a sole proprietor on Schedule C or as a farmer on Schedule F. Also eligible are general partners, limited partners receiving guaranteed payments and S corporation shareholders who own more than 2% of the S corp and get W-2 wages.
It’s not all-or-nothing when it comes to deciding your eligibility for this deduction in a particular year. Eligibility is determined monthly. For example, if you were self-employed for January to June and then had an employer-sponsored plan from July to December, you could deduct your premiums for the first six months.
Self-Employed Health Insurance Premium Limitations
One of the most significant obstacles to claiming this deduction is that you can’t have had access to employer-sponsored health coverage. That includes you and your spouse. If either of you could have joined a plan at work, you cannot claim this deduction. However, again it’s not all or nothing. If you only had access to employer-subsidized coverage part of the year, you could claim the deduction for the rest of the year. Also, there may be exceptions if the company-sponsored plan was too costly or didn’t meet minimum coverage standards.
When it comes to long-term care, some age-based limits apply. The IRS caps the maximum amount of qualified long-term care premiums you can deduct based on how old you are. Caps increase with age and adjust annually. For 2023, ages and amounts are:
| Age | Cap |
| 40 and under | $480 |
| 41 to 50 | $890 |
| 51 to 60 | $1,790 |
| 61 to 70 | $4,770 |
| Over 70 | $5,960 |
Caps for 2024, according to the American Association for Long-Term Care Insurance, are:
| Age | Cap |
| 40 and under | $470 |
| 41 to 50 | $880 |
| 51 to 60 | $1,760 |
| 61 to 70 | $4,710 |
| Over 70 | $5,880 |
How to Claim
You claim the self-employed health insurance deduction on Schedule 1 of Form 1040. Note that this is different from claiming medical expenses, which you do when you itemize deductions using Schedule A.
The self-employed health insurance deduction can be claimed even when you don’t itemize. This makes it useful to more people, since most taxpayers use the standard deduction rather than itemizing. An above-the-line deduction like this also reduces your adjusted gross income, so you may be able to tap into more tax credits. If you do itemize, you can still claim this as an above-the-line deduction.
Bottom Line
The self-employed health insurance deduction offers a valuable tax break to help offset expensive yet essential coverage costs. To qualify, you must have eligible insurance and meet self-employment criteria. If you do, you can claim this deduction regardless of whether you itemize.
Tax Planning Tips
- A meeting with a financial advisor is a first step to developing a comprehensive tax minimization strategy tailored to your situation. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- SmartAsset’s income tax calculator lets you project your federal, state and local taxes for the current filing year. It’s free and all you need to do is enter your income and location to get started.
Photo credit: ©iStock.com/mixetto, ©iStock.com/Srdjanns74