If you are self-employed and buy your own health insurance, you can usually deduct the premiums — even if you take the standard deduction. It is one of the most valuable deductions available to freelancers, and one of the most often missed.
Who qualifies
- You had a net profit from self-employment (a sole proprietor, a partner, or a more-than-2% S corporation shareholder).
- You were not eligible to take part in a subsidized health plan offered by an employer — yours or your spouse’s — for the months you claim. Eligibility is what counts: if you could have joined your spouse’s employer plan, those months do not qualify, even if you didn’t enroll.
The test is applied month by month, so if you started freelancing in May after leaving a job with coverage, you can deduct premiums from May onward.
What you can deduct
- Medical, dental and vision insurance premiums
- Qualified long-term care insurance premiums, up to an age-based limit
- Medicare premiums you pay voluntarily
The coverage can be for you, your spouse, your dependents, and your children who were under 27 at the end of the year, even if they are not your dependents.
The limits
- The deduction cannot exceed your net profit from the business, reduced by half of your self-employment tax and any retirement plan contributions.
- Premiums paid with pre-tax money or reimbursed by someone else don’t count.
- If you received the premium tax credit for Marketplace coverage, the two interact and the calculation gets more involved; tax software or a preparer will handle the back-and-forth.
What it saves — and what it doesn’t
The deduction is taken on Schedule 1 of Form 1040 (using Form 7206 when required), so it lowers your income tax. It does not lower self-employment tax, because it is not a Schedule C business expense.
Why it matters when comparing job offers
An employer that pays most of your premiums is giving you thousands of dollars of tax-free compensation. When you compare a W-2 job with contract work, include the premiums you would pay yourself in the expenses field of the 1099 vs W-2 calculator, and in your hourly rate.
Records to keep
Keep premium statements, proof of payment, and a note of any months you were eligible for an employer plan. If you also run a Health Savings Account with a high-deductible plan, that is a separate deduction with its own rules.