If you work for yourself and pay your own health insurance, those premiums may be one of the largest deductions you have — and one of the easiest to get slightly wrong. The self-employed health insurance deduction lets eligible freelancers, sole proprietors, partners and more-than-2% S corporation shareholders deduct premiums as an adjustment to income on Schedule 1 (Form 1040), line 17, without itemizing.
This guide explains the rules from the IRS Instructions for Form 7206 and Form 7206 itself (the 2025 versions, used on returns filed in 2026). It is general education, not advice for your return.
The short answer
- You can generally deduct premiums for medical, dental and vision insurance and qualified long-term care insurance for yourself, your spouse and your dependents — plus a child who was under 27 at year-end, even if that child is not your dependent.
- You need net profit (or, for S corp owners, wages) from the business the plan is established under. The deduction cannot exceed what that business earned, after a couple of subtractions.
- You cannot count premiums for any month you were eligible for a subsidized health plan through your employer or your spouse's employer — even if you did not enroll.
- The deduction lowers your income tax, but it does not lower your self-employment tax.
- Many people can use the worksheet in the Form 1040 instructions. You must use Form 7206 if you have more than one source of self-employment income, file Form 2555, or are counting long-term care premiums.
Who qualifies
The Form 7206 instructions say one of these must be true for the year:
- You were self-employed and had a net profit reported on Schedule C or Schedule F.
- You were a partner with net earnings from self-employment (Schedule K-1, box 14, code A).
- You used one of the optional methods to figure net earnings on Schedule SE.
- You received wages from an S corporation in which you were a more-than-2% shareholder, and the S corporation's payment or reimbursement of your premiums is shown as wages on your W-2.
A Schedule C business with a loss for the year does not give you this deduction. (Premiums may still count as a medical expense if you itemize — see below.)
"Established under your business" — whose name can be on the policy
For a sole proprietor or single-member LLC filing Schedule C, the instructions say the policy can be in the name of the business or in your own name. An individual policy you bought on the Marketplace or directly from an insurer can qualify.
Partners and S corporation owners have an extra step. If the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the amount as guaranteed payments, or the S corporation must reimburse you and include the amount in box 1 of your W-2 as wages. Otherwise, the instructions say, the plan "won't be considered to be established under your business." If you are an S corp owner, settle this with your payroll provider before year-end; it also interacts with how you set your reasonable salary.
Medicare counts too. The instructions allow Medicare premiums you voluntarily pay for insurance in your name that is similar to qualifying private health insurance.
The month-by-month employer-plan rule
This is the rule most often missed by freelancers with a working spouse. Per the instructions, you can't take the deduction for any month you were eligible to participate in any employer-subsidized health plan — including your spouse's — at any time during that month, even if you didn't actually participate. Premiums for coverage of a dependent or under-27 child are also excluded for months that person was eligible for a subsidized plan through their own employer.
The test is applied month by month, so a mid-year change splits the year:
| Situation (hypothetical) | Months that can count |
|---|---|
| Single freelancer, no employer plan all year, pays $650/month | All 12 months — $7,800 of premiums |
| Spouse starts a job on July 1 whose employer subsidizes family coverage, and you keep your own policy | January–June only — the July–December premiums do not count, even if you decline the spouse's plan |
| You take a W-2 job with a subsidized plan in October and also freelance | January–September only |
Long-term care plans are tested separately from regular health plans.
The cap: your net profit from that business
You cannot deduct more than the business earned. Form 7206 builds the limit like this (lines 4–13, simplified for one Schedule C business):
- Start with your net profit from the business under which the plan is established.
- Subtract the deductible part of your self-employment tax attributable to that business (Schedule 1, line 15).
- Subtract any SEP, SIMPLE or qualified plan contributions (Schedule 1, line 16) for that business — so a large Solo 401(k) or SEP contribution can shrink the room left for premiums.
Your deduction is the smaller of your eligible premiums and that limit.
Example (hypothetical, rounded). Jordan has $60,000 of Schedule C net profit, no retirement contributions and pays $9,600 of eligible premiums. Self-employment tax is about $60,000 × 92.35% × 15.3% ≈ $8,478, so the deductible half is about $4,239. The limit is about $60,000 − $4,239 = $55,761 — well above $9,600, so the full $9,600 is deductible.
Low-profit example. Sam has a first-year side business with $5,000 of net profit and pays $7,200 of premiums. The deductible half of SE tax is about $353, so the limit is about $4,647. Sam can deduct about $4,647 on line 17. The rest is not lost entirely: the instructions say medical insurance payments not deductible on line 17 can be included as medical expenses on Schedule A if you itemize (subject to the usual Schedule A limits). Don't count the same dollars twice — the amount you deduct on line 17 is excluded from your Schedule A medical expenses.
If you have more than one plan, each established under a different business, the instructions require a separate Form 7206 for each, with each plan limited by its own business's earnings.
What it does and doesn't reduce
- Reduces: your adjusted gross income and therefore your income tax.
- Does not reduce: self-employment tax. The instructions are explicit that you can't subtract this deduction when figuring net earnings for SE tax from the business the plan is established under. If you are budgeting quarterly payments, run the quarterly tax estimator with your premiums treated as an income-tax deduction only. (Our SE tax guide covers what does lower SE tax.)
Long-term care insurance: age-based limits
Premiums for a qualified long-term care insurance contract can be included, but only up to an age-based limit per covered person. For 2025, Form 7206 lists:
| Age at end of year | Maximum premium you can count |
|---|---|
| 40 or younger | $480 |
| 41–50 | $900 |
| 51–60 | $1,800 |
| 61–70 | $4,810 |
| 71 or older | $6,020 |
The IRS adjusts these limits each year, so check the current Form 7206 for the year you are filing. Including any long-term care premiums means you must use Form 7206 rather than the 1040 worksheet.
Marketplace plans and the premium tax credit
If your plan came from the Health Insurance Marketplace and you received advance payments of the premium tax credit or are claiming the credit, the deduction and the credit affect each other: the deduction lowers your income, which can change the credit, which changes the premiums you actually paid. The instructions point you to IRS Publication 974 for this calculation, along with Form 8962. Tax software usually handles the interaction; if you prepare by hand, follow Pub. 974 rather than simply entering the full premium.
Form 7206 or the 1040 worksheet?
Per the instructions, the worksheet in the Form 1040 instructions is generally enough. You must file Form 7206 if any of these apply:
- You had more than one source of income subject to self-employment tax (for example, two Schedule C businesses, or a Schedule C plus partnership income).
- You file Form 2555 (foreign earned income).
- You are counting qualified long-term care insurance premiums.
Form 7206 replaced the worksheet that used to live in Publication 535.
A quick checklist before you file
- Premium statements for the year (insurer or Marketplace Form 1095-A), split by month if your eligibility changed.
- Dates any employer-subsidized plan was available to you or your spouse — not just whether you enrolled.
- Your Schedule C net profit and Schedule SE, plus any SEP/Solo 401(k) contributions for the same business.
- For S corp owners: confirmation the premiums are in box 1 of your W-2.
- For partners: confirmation the premiums are reported as guaranteed payments.
Health insurance is also one line in the bigger picture of what self-employment really pays. Our true hourly rate calculator lets you include it, and the self-employed deductions checklist covers the rest of your write-offs.
Sources
- IRS, Instructions for Form 7206 (2025) — who qualifies, policy-name rules for sole proprietors, partners and S corp shareholders, the employer-plan month rule, long-term care rules, Schedule A interaction, effect on self-employment tax, when Form 7206 is required.
- IRS, Form 7206 (2025) — the line-by-line net-profit limit and the long-term care age limits.
- IRS Publication 334, Tax Guide for Small Business — self-employed health insurance deduction overview and the Pub. 974 / Form 8962 pointer for Marketplace plans; plus the primary sources listed below.