Self-employed people don't get employer-subsidized health insurance, but the tax code offers a meaningful consolation: an above-the-line deduction for your own premiums, separate from and in addition to the standard or itemized deduction.
What It Covers
If you're self-employed and have a net profit from your business, you can generally deduct the premiums you pay for medical insurance, dental insurance, and qualified long-term care insurance for yourself, your spouse, and your dependents — as an above-the-line deduction (technically an adjustment to income), meaning you get it regardless of whether you itemize or take the standard deduction.
The Net-Profit Limitation
The deduction cannot exceed your net self-employment profit for the year, after subtracting the deduction for half your self-employment tax and any retirement plan contributions made on your own behalf. If your business has a loss, or profit too small to cover your premiums after these other adjustments, the deduction is limited to whatever profit remains — you can't use this deduction to create or increase a business loss.
It Doesn't Reduce Self-Employment Tax
This is a common point of confusion: the self-employed health insurance deduction reduces your income tax, but it does not reduce the net earnings figure used to calculate self-employment tax. You still pay the full 15.3% SE tax on your net self-employment earnings before this deduction is applied — the health insurance deduction only comes into play afterward, in calculating your taxable income for income tax purposes.
The Employer-Coverage Disqualification
You cannot claim this deduction for any month in which you (or your spouse) were eligible to participate in an employer-subsidized health plan — including a spouse's employer plan, even if you chose not to enroll in it. This trips up a fair number of self-employed people whose spouse has access to workplace coverage: eligibility for that coverage, not actual enrollment, is what disqualifies the deduction for the months it applied.
💡 If your spouse becomes eligible for employer coverage partway through the year, the deduction is disqualified only for the months that eligibility existed — you may still be able to claim a partial-year deduction for the months before that eligibility began.
Interaction With the ACA Premium Tax Credit
If you purchase coverage through the ACA Marketplace and also receive a Premium Tax Credit, only the portion of your premiums you actually paid out of pocket (after the credit) is eligible for this deduction — you can't double-dip by deducting premiums that were effectively covered by the subsidy. The calculation involves a somewhat circular interaction between the deduction and the credit (since the deduction affects your MAGI, which affects the credit calculation, which affects how much premium you actually paid), which is one of the more genuinely complex intersections in individual tax law — tax software or a professional handling this calculation correctly matters more here than in most other areas.
Long-Term Care Insurance: Age-Based Limits
Qualified long-term care insurance premiums are deductible under this provision too, but subject to age-based dollar limits that increase as you get older, rather than being fully deductible regardless of premium amount the way medical insurance generally is.
A Worked Example
A self-employed consultant has $60,000 in net self-employment profit, pays $9,000 in health insurance premiums for themselves and their family, and isn't eligible for any employer-subsidized coverage. After the SE tax deduction reduces their profit slightly, they still have well over $9,000 of net profit remaining, so they can deduct the full $9,000 as an above-the-line adjustment — separate from their SE tax calculation and separate from whether they itemize.
Common Questions
Does this apply to S-corp owners the same way? The mechanics differ slightly — a more-than-2%-shareholder in an S-corp generally has their health insurance premiums included in W-2 wages, then takes this same above-the-line deduction on their personal return, rather than deducting it directly as a business expense on the corporate return.
Can I deduct premiums for a plan that also covers non-dependent adult children? Generally the deduction covers you, your spouse, and your tax dependents; coverage for a non-dependent child (even if included on the same policy) typically isn't eligible under this specific provision.
What if my business had a loss this year? With no net profit, the deduction is generally unavailable for the year (limited to zero), though unused premium amounts don't carry forward the way some other business deductions do — check current guidance on your specific situation.
💡 Run your self-employment numbers through the Self-Employment preset first, then subtract your qualifying health insurance premiums (up to your net profit limit) as an above-the-line adjustment when estimating your total tax.