When Health Insurance Premiums Are Deductible for Solopreneurs: A Practical Guide
Ah, health insurance. Many people stay on their parents’ plan for as long as humanly possible, kinda like a barnacle clinging to a ship’s hull, hoping no one removes them.
But at some point, you are forced to check one more “adulting” box and get your own coverage. And if you run your own business, you may have seen content out there touting the tax deduction for health insurance premiums.
The good news: there is a deduction available for health insurance premiums paid.
Less good news: like everything in tax, there are very specific rules.
This guide walks you through exactly when health insurance premiums are deductible for Schedule C filers (solopreneurs/self-employed business owners), how to calculate it, and how it interacts with ACA credits and HSAs. As a bonus, I give you a guide on how to check your tax return to make sure the deduction actually made it on there.
Where This Deduction Lives in the Tax Code
This deduction falls under the Self-Employed Health Insurance Deduction allowed by the IRS. It is not a business expense on Schedule C. Instead, it is an “above-the-line” adjustment to income claimed on Schedule 1 of Form 1040 and calculated using Form 7206.
This is an important distinction to make sure you claim the deduction correctly.
In non-tax jargon, you don’t deduct this with your other business expenses. Instead you deduct it personally, because you are self-employed.
Who Is Eligible for This Deduction
You may qualify if:
You had net profit on Schedule C for the year, or
You used one of the optional methods on Schedule SE to compute self-employment income
AND
The health insurance policy is in your name or the business’s name
If you didn’t have net profit, this deduction generally doesn’t apply. This is reasonable in the sense that you can’t “deduct” a personal expense if you don’t have enough income to even offset it with a personal deduction.
Shameless plug to reach out to Akouson Financial to talk through how proper tax planning for your solopreneur business could benefit from tax planning.
What Premiums Are Deductible
If you qualify, you may deduct premiums paid for:
Medical, dental, and vision insurance
Coverage for yourself, your spouse, and your dependents
Coverage for a child under age 27 at year end (even if not a dependent)
Medicare premiums you voluntarily pay
Qualified long-term care insurance (subject to annual age-based limits):
Age 2025 Limit
40 or younger $480
41–50 $900
51–60 $1,800
61–70 $4,810
71+ $6,020
For many solopreneurs, this is essentially all the health premiums you’re paying out of pocket.
But (you knew this was coming)… there are exceptions.
When Premiums Are Not Deductible
Are you ready? Here it is, the rule that is often either missed or misinterpreted:
If you were eligible to participate in an employer-sponsored plan (yours, your spouse’s, your dependent’s, or your child under 27’s employer) for any month — you cannot deduct premiums for that month.
That’s right, I bolded “eligible”. So even if you didn’t enroll, if you were eligible through another’s plan as noted above (did you notice I bolded again for emphasis?), then you can’t take the deduction.
The IRS position is: you could have been covered, so no deduction.
Also not deductible:
Premiums paid with HSA funds (more on this later)
Certain special rules for retired public safety officers (rare, but worth noting)
How Much Can You Deduct (The Calculation Part)
The amount itself is pretty straightforward - just look at what you paid for health insurance coverage.
But as a reminder, you cannot deduct more than the net profit from the business under which the plan is established.
You also cannot combine profits from multiple businesses to increase the limit (be sneaky when you play monopoly, not when you file your taxes).
If you have multiple businesses and multiple policies:
You must complete a separate Form 7206 for each
Don’t Forget the ACA Premium Tax Credit Interaction
If you purchased insurance through the Marketplace and received Advance Premium Tax Credits (APTC):
You must reduce your deduction by the portion of premiums covered by the credit.
Key rule:
You cannot deduct premiums that were effectively paid by the government.
IRS Publication 974 explains two calculation methods (iterative and simplified) to prevent double-dipping between the credit and the deduction.
This is an area where many returns are done incorrectly, but the ACA PremiumTax Credit is currently in frequent discussion for changes at the time of this blog post being written. A separate blog will be written once changes are finalized to help you navigate the credit specifically.
Important (Quick) HSA Considerations
You can absolutely have:
A self-employed health insurance deduction and
Contribute to an HSA
But you cannot:
Pay premiums from the HSA and also claim the deduction
Premiums are generally not qualified HSA expenses except for very limited cases (COBRA, long-term care, unemployment).
No double dipping. Obviously. If you are double-dipping, you’re wrong.
How to Claim the Deduction
This deduction is calculated on Form 7206.
The final number flows to (based on Forms/Schedules at the time this post is written):
Schedule 1 → Part II → Self-Employed Health Insurance Deduction (Line 17)
Which then reduces your Adjusted Gross Income on Form 1040 (Line 10).
How to Check Your Tax Return to Make Sure It Was Claimed
This is the part almost no one knows to do.
Pull your tax return and check:
Is there a Form 7206 included?
Look at Schedule 1, Part II
Find the line for Self-Employed Health Insurance Deduction (Line 17)
Confirm the number looks reasonable compared to what you actually paid
If you paid $8,000 in premiums and this line shows $0…something is wrong.
Documentation You Should Keep
You want:
Premium invoices or statements
Bank/credit card proof of payment
Proof the policy is in your name or the business’s name
Marketplace Form 1095-A (if applicable)
If audited, this is what the IRS will ask for. Remember: Support, support, support, the IRS always asks for support.
Common Mistakes Solopreneurs Make
Deducting premiums when eligible for a spouse’s employer plan
Deducting premiums paid with HSA funds
Deducting more than net profit allows
Forgetting to coordinate with ACA credits
Assuming their tax software or preparer handled it correctly without checking
Final Thoughts
Health insurance isn't cheap, so this is one of the most valuable deductions available to solopreneurs. Unfortunately, it also happens to be one of the most commonly missed or miscalculated deductions as well.
If you pay for your own health insurance and run a profitable Schedule C business, you should absolutely know:
If you qualify
How much you can deduct
Whether it actually made it onto your return
If you’re unsure, or you want someone to review your return and make sure this (and other deductions) are being handled correctly, consider engaging Akouson Financial for tax preparation services.
We’ll walk through your situation and make sure your tax return gets the attention it deserves.
Disclaimer:
The information provided in this blog is for general educational purposes only and should not be construed as tax, legal, or financial advice. Every individual’s situation is unique, and you should consult a qualified tax professional or financial advisor before making decisions based on this content. Akouson Financial and its representatives are not responsible for any actions taken based on the information provided herein.