Health insurance is the part of working for yourself that people most often describe as the reason they nearly did not. It is expensive, the shopping is miserable, and nobody is doing any of it on your behalf.
This guide will not tell you which plan to buy. It covers the part that is knowable and that people routinely get wrong: how the premiums are treated at tax time, and the two rules that quietly cost money every year.
The good news, stated precisely
If you are self-employed with a net profit, you can generally deduct what you paid for medical, dental and vision insurance for yourself, your spouse and your dependents.
The important word is where. This is an adjustment to income, reported on Schedule 1 of the 1040, line 17. It is not an itemized deduction. You get it whether or not you itemize, and since most people take the standard deduction, that distinction is the whole difference between a deduction that exists and one that does anything.
It can also cover your child who was under 27 at the end of the year, even if that child was not your dependent — a rule with no obvious logic to it and worth knowing precisely because it sounds too generous to be true.
The first thing people get wrong: it does not touch self-employment tax
Ask most self-employed people what a $9,000 premium saves them and they will reach for the combined figure: their income tax rate plus 15.3 percent. It is a reasonable guess and it is wrong.
The instructions to Form 7206 are unambiguous. You cannot subtract the self-employed health insurance deduction when figuring net earnings for self-employment tax. It comes off your income tax and leaves the 15.3 percent entirely alone.
What a $9,000 premium actually saves
Illustrative, at a 22% marginal income tax rate.
This matters beyond arithmetic. If you set money aside as a percentage of every payment, as the tax guide suggests, and you quietly reduced that percentage because the premiums were “deductible”, you have been under-reserving all year.
The second thing: eligibility, not enrollment
Here is the rule that catches people, and it is stricter than almost anyone expects.
You cannot take the deduction for any month you were eligible to participate in a subsidized employer plan — including your spouse’s — even if you never enrolled.
Three things about that sentence do real damage:
- It is eligibility, not participation. Turning down your spouse’s employer plan and buying your own does not restore the deduction. Being able to join is enough to lose it.
- It is month by month. A spouse who starts a job with benefits in September disqualifies roughly the last four months of the year and leaves the first eight perfectly deductible. The deduction is not all-or-nothing, and treating it that way costs you eight months.
- It reaches further than the two of you. The same bar applies to a subsidized plan maintained by the employer of your dependent, or of your child who was under 27 at year end.
None of this stops you buying your own cover for good reasons — a spouse’s plan can be worse, or exclude your doctors. It just means the tax deduction is not among those reasons for the months in question, and a household with one employed partner should work this out before assuming the premiums are sheltered.
Capped at your profit
The deduction cannot exceed the net profit of the business the plan is established under. A year with thin profit caps the deduction at that profit; a year with a loss produces no deduction at all.
If you have more than one business and more than one plan, the limit is worked out per business on separate copies of Form 7206 — which is the point at which this stops being a thing to do in your head.
Some things that do count
- Dental and vision, not just medical.
- Qualified long-term care premiums, subject to an age-banded annual cap per person. The 2025 form ran from $480 for age 40 and under to $6,020 for 71 and over; the bands are inflation-adjusted, so read the current year’s form rather than trusting a figure you saw somewhere.
- Medicare premiums you pay voluntarily for coverage in your own name.
- A policy in your own name rather than the business’s, if you file Schedule C. It does not have to be a business policy.
And anything you cannot deduct on line 17 is not simply lost — it can join your other medical expenses on Schedule A, where it counts only above 7.5 percent of your AGI. For most people that floor swallows it, which is exactly why the above-the-line route is the one that matters.
The Marketplace complication, briefly
If you buy through the Marketplace and receive advance premium tax credits, the deduction and the credit are defined in terms of each other: the deduction lowers your income, which changes the credit, which changes the deductible premium. The IRS publishes a whole publication about resolving it.
That is not a calculation to attempt by hand at 11 PM in April. It is the single clearest case in these guides for having someone else do the return.
What to do this week
- Check the months. Write down any month in the year when you or your spouse were eligible for an employer plan. That list is the only thing standing between you and the deduction.
- Re-check your set-aside percentage if you lowered it on the assumption that premiums reduce the 15.3 percent. They do not.
- Keep the premium statements with the year’s records rather than in an inbox. The deduction is straightforward to claim and tedious to reconstruct.
And if the household includes someone with employer benefits, do the arithmetic on joining their plan rather than assuming your own is better because it is deductible. Some months, it is not.
Questions, answered
Do I have to itemize to deduct my health insurance premiums?
No. The self-employed health insurance deduction is an adjustment to income reported on Schedule 1 (Form 1040), line 17, not an itemized deduction. You take it whether or not you itemize. Any premiums you cannot deduct there can still be included with your other medical expenses on Schedule A if you do itemize, where they are subject to the 7.5 percent of AGI floor.
Does the health insurance deduction reduce my self-employment tax?
No, and this is the most common misunderstanding. The instructions to Form 7206 say plainly that you cannot subtract the self-employed health insurance deduction when figuring net earnings for self-employment tax. It reduces income tax only. A $9,000 premium therefore saves you your marginal income tax rate on $9,000, not that plus 15.3 percent, and budgeting as though it saves both is how people end up short in April.
My spouse has insurance through work but I did not join. Can I still deduct mine?
Generally no, for any month you were eligible. The rule turns on eligibility rather than enrollment: you cannot take the deduction for any month you were eligible to participate in a subsidized health plan maintained by an employer, including your spouse’s, even if you did not actually participate. It is applied month by month, so a spouse starting a job in September can disqualify the last four months of the year while leaving the first eight intact.
Can I deduct premiums for my adult child?
Often, yes. The policy can cover your child who was under age 27 at the end of the year even if that child was not your dependent. Child includes a son, daughter, stepchild, adopted child or foster child. The same employer-plan restriction applies, though: if your child was eligible for a subsidized plan through their own employer for a given month, that month’s premiums do not count.
Sources
- Instructions for Form 7206, Self-Employed Health Insurance Deduction — Internal Revenue Service. The two load-bearing rules: that the deduction cannot be subtracted when figuring net earnings for self-employment tax, and that it is unavailable for any month you were eligible for a subsidized employer plan including a spouse’s.
- Topic no. 502, Medical and dental expenses — Internal Revenue Service. Confirms the deduction is an adjustment to income rather than itemized, covers a child under 27 who is not a dependent, and that the itemized medical route carries a 7.5% of AGI floor.
- About Form 7206 — Internal Revenue Service. The form itself, which replaced the old worksheet in Publication 535.
- Health coverage for self-employed — HealthCare.gov. Marketplace enrollment periods and how self-employment income is treated for coverage.
- Publication 974, Premium Tax Credit — Internal Revenue Service. The circular interaction between the deduction and the premium tax credit for Marketplace plans.
Looking for more?
Related guides
- What you can actually deductThe ordinary business expenses this one sits beside.
- How much to set aside for taxesWhy the 15.3% matters so much here.
- Retirement when nobody offers you a 401(k)The other benefit no employer is arranging for you.
Elsewhere on BrassWell
- All guidesEverything we’ve written, in one place.
- Support CenterAnswers written the way these guides are.
- How BrassWell worksIncome, buckets, tax set-aside and invoicing.
- Ask us directlyA person replies, 9 AM–5 PM Pacific, Mon–Fri.
General information, not tax advice, and emphatically not advice about which plan to buy. The deduction interacts with the premium tax credit in a genuinely circular way for Marketplace plans — Publication 974 exists because of it — so if you receive advance premium tax credits, have whoever prepares your return handle the calculation. Long-term care premium caps and Marketplace rules change annually.