How Does the Self-Employed Health Insurance Tax Deduction Work?
You’re allowed to deduct up to 100% of your monthly health insurance rates, called premiums, from your taxable income if you are self-employed.
Find Cheap Health Insurance Quotes in Your Area
To qualify, you can’t report a loss for the year, and you can’t deduct an amount larger than your profit.
If you or a spouse has workplace coverage available through a business you don’t own, you can’t deduct your health insurance premiums on your taxes. This is true even if you choose to buy your own coverage and not participate in the employer’s plan.
How does the self-employed health insurance tax deduction work?
The self-employed health insurance tax deduction works by letting you subtract, or deduct, the amount you spend on health insurance from your taxable income.
You can take your self-employed health insurance tax deduction regardless of whether you choose to itemize your taxes or use the standard deduction.
For example, imagine you made a $60,000 profit on your business last year. During that time, you also spent $5,000 on health insurance premiums. When you file your taxes, you would take $5,000 away from your $60,000 profit leaving you with $55,000 in taxable income.
To qualify, you need to meet several conditions.
- You need to be self-employed. This includes small business owners, freelancers, contractors and gig workers. If you’re self-employed for part of the year, you can deduct your health insurance premiums for only that part of the year.
- You can’t have access to employer coverage. If you have a day job that offers health insurance or you can get coverage through a spouse’s workplace, you’re not allowed to deduct your monthly health insurance rate even if you reject the workplace coverage.
- You need to turn a profit. You can’t deduct your health insurance costs if your business is operating at a loss.
- You can’t deduct an amount larger than your profit. If you made $4,000 from your business in a single year and you paid $5,000 for health insurance, the most you could deduct on your taxes is $4,000.
Can you get ACA health care subsidies and deduct health insurance premiums on your taxes?
Yes, you can get discounts, called subsidies, on Affordable Care Act (ACA) health insurance and still deduct your health insurance premiums on your taxes.
But you can only deduct the amount you paid for ACA coverage, also called Obamacare. For example, imagine you bought a Silver health plan through your state health exchange for $800 per month, and you’re eligible for $500 of subsidies per month. In this scenario, you could only deduct $3,600 on your taxes.
A common way for self-employed individuals to get health insurance is through HealthCare.gov or their state health exchange. These health insurance plans offer strong protections for customers, including guaranteed services for common medical issues and an annual limit on how much you’ll spend on health care every year, called an out-of-pocket maximum.
You may also get discounts, called subsidies or premium tax credits, if you buy exchange health insurance and you earn less than about $62,000 per year ($128,000 per year for a family of four). These discounts can dramatically lower the cost you pay for coverage.
Find Cheap Health Insurance Quotes in Your Area
How much of your health insurance premiums can you deduct?
You can deduct up to 100% of your health insurance premiums on your taxes. Remember, your premiums are the monthly cost you pay to have health insurance.
You can’t normally deduct other medical costs, such as your deductible, copays and coinsurance unless you spend more than 7.5% of your income on medical costs.
This is a separate deduction available to anyone who buys their own health insurance.
Who can get the self-employed health insurance deduction?
Anyone who works for themself, buys their own health insurance and doesn’t have access to employer coverage can take the self-employed health insurance deduction.
Looking at your tax forms can help you understand whether or not you qualify for this deduction.
- If you get a 1099 form when it’s time to file your taxes, you’re self-employed.
- If you get a W2 form when it’s time to file your taxes, you’re not self-employed.
It’s not uncommon to get both types of forms if you moonlight or work two or more jobs. In this case, you can deduct up to 100% of your health insurance premiums if your W2 job doesn’t offer insurance. Again, the profit from your 1099 work has to be more than what you paid for coverage in order to deduct 100% of your premium costs. Otherwise, you can only subtract up to your net profit.
Many terms are used to describe people who work for themselves. Some common ones include small business owner, self-employed, contractor, gig worker and freelancer.
When it comes to filing your taxes, the government doesn’t care what you call yourself or the type of work you do. The same rules apply whether you’re an independent contractor driving for Uber or a small business owner running your own law firm.
Can you deduct health insurance premiums for other people?
Yes, you can deduct health insurance premiums you pay for your spouse, children and other dependents if you’re self-employed. You can only deduct your children’s health insurance premiums from your taxes until they turn 27 in most states.
If you own a small business and you offer your employees health insurance, you can deduct some or all of those costs from your business taxes. This is different from subtracting health insurance costs for yourself or your family because those deductions are for your regular income taxes.
How to deduct health insurance premiums if you’re self employed
You can deduct health insurance premiums by placing the total amount spent on health insurance in the past year on line 17 of your 1040 Schedule 1 form.
To claim your health insurance premiums on your taxes, you need to:
- Add up how much you paid for health insurance over the past year. Remember, you can only count months when you didn’t have the opportunity to get workplace coverage through a day job or a spouse.
- Check your business’s profits for the year. If your profits are higher than what you paid for health insurance, you can deduct the entire cost of coverage. Otherwise, you can only deduct how much you made in profits.
- Place the amount you want to deduct from your taxable income on line 17 of your 1040 Schedule 1 form. This form is separate from your normal 1040 tax return form.
You can use Form 7206 available on the IRS (Internal Revenue Service) website to figure out how much of your health insurance costs you’re allowed to deduct from your taxes. This form is a worksheet, and you don’t need to include it with your tax return.
Frequently asked questions
How does the self-employed health insurance tax deduction work?
The self-employed health insurance tax deduction works by letting you subtract up to your total health insurance costs over a single year from your taxable income. So, if you’re self-employed and you made $60,000 last year and paid $5,000 for coverage during that time, you would only owe taxes on $55,000.
Are health insurance premiums tax deductible if you’re self-employed?
Yes, you can deduct up to 100% of your health insurance premiums if you’re self-employed. To qualify for this deduction, you need to turn a profit, and you can’t have access to employer health insurance through a job or spouse.
How much health insurance can you write off on taxes?
You can write off up to 100% of your monthly health insurance costs, called premiums, if you’re self-employed and you buy your own health insurance. Keep in mind, you can’t subtract, or deduct, an amount larger than your profit for the year, so if you paid $6,000 in health premiums for the year and only made $5,000 in profit, you can only deduct $5,000, or 83%, of what you paid out for your monthly health insurance costs.
Methodology
Information about self-employed health insurance deductions came from the IRS. Other sources include HealthCare.gov.
About the Author
Former Senior Writer
Talon Abernathy is a former ValuePenguin Senior Writer who specialized in health insurance, Medicare and Medicaid. He also contributed to other insurance verticals including home, renters, auto, motorcycle and flood insurance.
Talon came to ValuePenguin in 2023. Since his arrival, he's helped to expand the site's health insurance-related content offerings. He enjoys helping readers understand the ins and outs of America's all too complicated health insurance landscape.
Before coming to ValuePenguin, Talon worked as a freelance writer. His prior work has touched on a broad range of personal finance-related topics including credit-building strategies, small business incorporation tactics and creative ways to save for retirement.
Insurance tip
In many parts of the country, you can qualify for a free Silver health insurance plan if you meet certain income requirements. Government subsidies in the form of premium tax credits and cost-sharing reductions may mean you'll pay nothing for coverage.
Expertise
- Health insurance
- Medicare and Medicaid
- Flood insurance
- Homeowners insurance
- Renters insurance
- Auto and motorcycle insurance
Referenced by
- The Miami Herald
- Money.com
- MSN
- Nasdaq
- The Sacramento Bee
- Yahoo! Finance
Education
- BA, University of Washington
- Certificate in Copyediting, UC San Diego
Credentials
- Licensed Life & Disability Insurance Agent
- Licensed Property & Casualty Insurance Agent
Editorial note: The content of this article is based on the author's opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.
