Health Insurance Deduction for Self-Employed

Who qualifies

• Sole proprietors, partners, and 2%+ S-Corp shareholders
• Not eligible for any month you (or your spouse) could enroll in a subsidized employer plan
• Coverage is for you, your spouse, dependents, and children under 27

Why above-the-line matters

The deduction reduces your AGI on Schedule 1 — you don't have to itemize. It lowers income tax but does not lower self-employment tax.

What premiums count

• Medical, dental, and qualified long-term care premiums
• Medicare premiums (Parts B, D, Medigap)
• Marketplace plan premiums net of any premium tax credit

Profit limit

The deduction can't exceed your net self-employment earnings from the business. If profit is too low, the excess can sometimes shift to a Schedule A medical itemized deduction (subject to the 7.5% AGI floor).

Pair with an HSA when possible

If your plan is HSA-eligible, the HSA contribution is a separate above-the-line deduction. The combination — premium deduction plus HSA contribution — is one of the most powerful tax moves available to a freelancer.

S-Corp owners — the W-2 reporting wrinkle

2%+ S-Corp shareholders must have premiums paid by the S-Corp and included in W-2 wages (Box 1) to claim the deduction personally. Miss this step and the deduction is lost.