Self-Employed Health Insurance Deduction

Health insurance is systems like Medicaid and medical insurance where you pay an insurance premium to a provider and in return, they pay for some of your medical costs. Deductions are a way to reduce your taxable income by subtracting the deduction amount from your adjusted gross income (AGI).

The self-employed health insurance deduction offers an easy way for self-employed people to get tax breaks and reduce their taxable income. As long as you’ve made a profit from your business and aren’t covered by any other healthcare plans, you can claim up to 100% of your health insurance premiums. Read on to learn more about deductible expenses and how to claim them.

Key Takeaways

• The self-employed health insurance deduction lets you subtract health insurance premiums from your AGI.
• To be eligible, you must generate a profit from your business and not be covered by another insurance plan.
• You can claim the self-employed health insurance deduction whether you itemize or take the standard deduction.
• The amount you can claim for long-term care premiums depends upon your age.
• Keeping good records of your health insurance expenses makes it easier to claim your deductions.

Table of Contents

• What Is Self-Employed Health Insurance Deduction?
• Is Health Insurance Tax Deductible For the Self-Employed? 
• What Medical Expenses Are Tax Deductible?
• How To Calculate Self-Employed Health Insurance Deduction 
• How To Claim Self-Employed Health Insurance Deduction 

What Is Self-Employed Health Insurance Deduction?

The self-employed health insurance deduction is a tax deduction that allows self-employed individuals to deduct the amount they pay in health insurance premiums from their adjusted gross income. This reduces your total AGI and helps you save on your taxes.

Not everyone is eligible for the self-employed health insurance deduction. You can only claim this deduction if you’re self-employed and turned a profit during the tax year, you don’t have another job besides self-employment, and you’re not covered under a spouse’s employer health insurance plan.

Is Health Insurance Tax Deductible for the Self-Employed?

Yes, your health insurance premiums are 100% tax deductible if you’re self-employed and don’t work another job on top of your business. Health insurance that qualifies for the deduction includes Medicaid A, B, C, and D, as well as medical insurance and long-term care coverage for yourself, your spouse, and your dependents and children under the age of 27.

In addition to standard self-employment, you’re also eligible for the health insurance deduction if you’re a shareholder in an S corporation and you own more than 2% of the stock. This also applies to general partners and limited partners who receive guaranteed payments from their businesses.

If you only meet the eligibility criteria for part of the year—for example, if you had another job and were covered by your employer’s plan for several months—you can still claim the health insurance deduction for the months that you were exclusively self-employed.

The self-employed or Freelancer health insurance deduction is claimed on Schedule 1 (Form 1040).

What Medical Expenses Are Tax Deductible?

If you itemize your tax deductions, you may be eligible to claim certain medical and dental expenses as deductible. These expenses must be for you, your spouse, or your dependents, and must be paid for by yourself and not covered by your health insurance policy. You can only deduct medical expenses in excess of 7.5% of your AGI for the tax year. 1 IRS, Medical and Dental Expenses.

Some tax-deductible medical expenses include:

• Fees for doctors, dentists, psychiatrists, and other medical professionals
• Fees for inpatient hospital care and nursing home care
• Cost of prescription drugs, medicine, and insulin
• Cost of reading glasses, prescription glasses, and contact lenses
• Cost of medical devices like hearing aids, guide dogs, and disability aids
• Transportation fees for medical appointments
• Medical insurance premiums

How To Calculate Self-Employed Health Insurance Deduction  

Calculating the self-employed health insurance deduction is fairly straightforward since you’re eligible to claim 100% of your health insurance premiums. Simply total the premiums you’ve paid on any Medicaid, medical insurance, and long-term care insurance to find your deduction amount. 

If you choose not to claim the full amount in Schedule 1 and you’re itemizing your deductions for the year, you can also add the remaining amount to your other medical and dental deductions on Schedule A. These itemized deductions must be in excess of 7.5% of your AGI. This option is generally used when your health insurance premiums exceed the total amount of your business income.

How To Claim Self-Employed Health Insurance Deduction

For most medical expenses, you have to itemize your deductions to be eligible to claim medical and dental care. However, the self-employed health deduction is an exception—you can claim this regardless of whether you itemize or claim the standard deduction. 

Claim the self-employed medical deduction by filling out Form 7206 to find your total, then report it on Schedule 1 of Form 1040. This is represented as an adjustment to your gross income. Note that the self-employed health insurance deduction isn’t considered a business deduction, but a personal one, which is why it goes into Schedule 1 and not Schedule C. 

What Medical Expenses Are Not Tax Deductible

While health coverage premiums are fully deductible for self-employed people, not all medical expenses qualify for a tax deduction. Some other medical expenses that cannot be deducted include:

• Any health insurance premiums paid for by an employer
• Any medical expenses that have been paid for by your health insurance
• Costs for non-prescription medication
• Costs for cosmetic surgery
• Costs for non-prescription nicotine products such as gum or patches
• Toothpaste, toiletries, and cosmetics
• Funeral expenses

Self-Employed Health Insurance Deduction Limitations

There are a few limitations to the self-employed health insurance deduction. First, you can only claim the deduction if your self-employed business generated a profit during the year. If you reported a loss for this tax year, you’re not eligible for the deduction. 

Secondly, the deduction is determined month-by-month, meaning that you can only deduct health insurance premiums for months when you are self-employed and not covered by any other plans.

For the 2024 tax year, the qualified deduction amounts for long-term care are projected as follows: 2 IRS, Self-Employed Health Insurance Deduction

Age	Deduction Amount
40 or younger	$470
41-50	$880
51-60	$1,760
61-70	$4,710
71 or older	$5,880

Conclusion

The self-employed health insurance premium deduction can be one of the most important deductions available to self-employed people. You can claim it whether or not you itemize or take the standard deduction and you can claim up to 100% of your premiums so long as they don’t exceed your business profits.

Keeping track of your health insurance coverage spending makes it easier to make the most of your deductions come tax season. FreshBooks expense tracking software offers an easy way to track all your personal and business expenses. Try FreshBooks free for a quick and professional way to organize your deductible expenses.

Article Sources:

1. IRS, Medical and Dental Expenses.
2. IRS, Self-Employed Health Insurance Deduction

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