Self-Employed? Learn How to Deduct Health Insurance Premiums

2 September 2025

Being your own boss comes with plenty of perks—flexibility, autonomy, and the opportunity to build something meaningful. But let’s be real: managing your own taxes isn’t exactly fun. One of the biggest expenses for self-employed individuals is health insurance. The good news? You might be able to deduct those premiums and save a significant chunk of money.

If you're self-employed and paying for your own health insurance, you need to understand how deductions work. This article breaks it all down in simple terms so you can maximize your savings while staying on the right side of the IRS.

Can You Deduct Health Insurance Premiums?

If you're self-employed and pay for your own health insurance, there's a good chance you can deduct those costs from your taxable income. This deduction applies whether you’re working full-time as a freelancer, running a small business, or operating a side gig that qualifies as self-employment.

But before you start deducting, you need to meet a few key requirements.

Who Qualifies for the Deduction?

To claim the self-employed health insurance deduction, you must:

- Be self-employed – This includes sole proprietors, freelancers, independent contractors, and small business owners.
- Have a net profit – Your business must generate income. You can't deduct health insurance premiums if your business operates at a loss.
- Be responsible for your own health insurance – If you qualify for an employer-sponsored plan through a spouse’s job, you won’t be eligible for the deduction.

Essentially, if you’re making money as your own boss and pay for your own health insurance, you’re in a great position to claim this deduction.

What Health Expenses Can You Deduct?

Now that we've established who qualifies, let’s talk about what you can actually deduct. The good news? It’s not just your monthly premiums.

Eligible Expenses

You can deduct:

- Health insurance premiums for yourself, your spouse, and your dependents.
- Dental insurance premiums because, yes, your pearly whites matter.
- Vision insurance premiums to make sure you're seeing things clearly—literally and financially.
- Long-term care insurance premiums, but there are limits depending on your age.

What’s NOT Deductible?

Not everything is fair game. You can’t deduct:

- Employer-sponsored health plans (if you qualify through a spouse).
- Medical expenses that don’t fall under insurance premiums (though these could be deductible as itemized medical expenses).
- Premiums paid through a subsidy on the Affordable Care Act (ACA) marketplace.

Understanding these distinctions ensures you deduct only what the IRS allows—keeping you tax-efficient while avoiding potential penalties.

How to Claim the Deduction

Let's get into the nitty-gritty of actually claiming this deduction. It’s easier than you might think.

Where to Report It

Unlike business expenses, which go on Schedule C, your health insurance deduction is an above-the-line deduction—meaning you don’t need to itemize your taxes to claim it. Instead, you’ll report it directly on Schedule 1 (Form 1040).

This reduces your adjusted gross income (AGI), which could also lower your tax bill in other ways (like reducing your self-employment tax).

How Much Can You Deduct?

You can deduct 100% of your health insurance premiums, as long as it's within the limits of your net profit from self-employment. However, if your business made less than what you paid in premiums, you can only deduct up to the amount of your net profit.

Example:
- You made $40,000 as a freelancer.
- You paid $5,000 in health insurance premiums.
- You can deduct the full $5,000.

But if you only made $3,000 and paid $5,000 for insurance, your deduction is limited to $3,000—because you can’t deduct more than you earned.

What If Your Business Has Employees?

If you operate as a sole proprietor with employees, things change a bit. You might be able to claim your own insurance premiums as a self-employed deduction and deduct the cost of employee coverage as a business expense.

Setting Up a Health Insurance Plan for Employees

If you provide health insurance for your employees, you typically deduct those costs on your Schedule C as a business expense. This is separate from the self-employed health insurance deduction, which only applies to your personal coverage.

This can be a great incentive for attracting top talent, so if your business is growing, offering health benefits might be a worthwhile investment.

Alternative Ways to Deduct Health Costs

Health insurance isn’t the only way to save on medical expenses. If you don’t qualify for the self-employed health insurance deduction, consider these alternatives.

Deducting Medical Expenses

If your medical expenses (including premiums) exceed 7.5% of your adjusted gross income (AGI), you might be able to deduct the excess by itemizing deductions on Schedule A.

Using a Health Savings Account (HSA)

If you have a high-deductible health plan (HDHP), contributing to an HSA is a smart move. The money you contribute:

- Lowers your taxable income.
- Grows tax-free.
- Can be used tax-free for qualified medical expenses.

It’s like a retirement account for medical costs—saving now while preparing for the future.

Common Mistakes to Avoid

Tax deductions are great, but only if you do them right. Here are some pitfalls to watch out for:

1. Claiming More Than You Earned

If your business didn't turn a profit, you can't claim the self-employed health insurance deduction. Don’t try to deduct more than your self-employment income—it won’t fly with the IRS.

2. Forgetting About Employer Coverage

Even if you’re self-employed, if your spouse has employer-sponsored health insurance that you qualify for, you can’t claim this deduction.

3. Mixing Personal and Business Expenses

Your health insurance deduction is not a business expense—it goes on Schedule 1, not Schedule C. Mixing the two can lead to errors on your tax return.

4. Ignoring Other Tax-Advantaged Options

If you don’t qualify for the self-employed health insurance deduction, look into itemized medical deductions or an HSA to still get some tax breaks.

Final Thoughts

Being self-employed comes with plenty of financial responsibilities, and health insurance can be a big expense. But if you qualify for the self-employed health insurance deduction, you can significantly lower your tax bill.

Make sure you understand the rules, track your expenses, and file your taxes properly to take full advantage of this opportunity. And if you're ever in doubt, consulting a tax professional is always a good idea—it’s better to be safe than sorry when dealing with the IRS.